INCOME TAX ASSESSMENT ACT 1997 INCOME TAX ASSESSMENT ACT 1997 - TABLE OF PROVISIONS CHAPTER 1--Introduction and core provisions PART 1-1--PRELIMINARY Division 1--Preliminary 1.1. Short title [see Note 1] 1.2. Commencement 1.3. Differences in style not to affect meaning 1.7. Administration of this Act PART 1-2--A GUIDE TO THIS ACT Division 2--How to use this Act Subdivision 2-A--How to find your way around 2.1. The design Subdivision 2-B--How the Act is arranged 2.5. The pyramid Subdivision 2-C--How to identify defined terms and find the definitions 2.10. When defined terms are identified 2.15. When terms are not identified 2.20. Identifying the defined term in a definition Subdivision 2-D--The numbering system 2.25. Purposes 2.30. Gaps in the numbering Subdivision 2-E--Status of Guides and other non-operative material 2.35. Non-operative material 2.40. Guides 2.45. Other material Division 3--What this Act is about 3.5. Annual income tax 3.10. Your other obligations as a taxpayer 3.15. Your obligations other than as a taxpayer PART 1-3--CORE PROVISIONS Division 4--How to work out the income tax payable on your taxable income 4.1. Who must pay income tax 4.5. Meaning of you 4.10. How to work out how much income tax you must pay 4.15. How to work out your taxable income 4.25. Special provisions for working out your basic income tax liability Division 5--How to work out when to pay your income tax 5.1. What this Division is about Subdivision 5-A--How to work out when to pay your income tax 5.5. When income tax is payable 5.10. When shortfall interest charge is payable 5.15. General interest charge payable on unpaid income tax or shortfall interest charge Division 6--Assessable income and exempt income 6.1. Diagram showing relationships among concepts in this Division 6.5. Income according to ordinary concepts (ordinary income) 6.10. Other assessable income (statutory income) 6.15. What is not assessable income 6.20. Exempt income 6.23. Non-assessable non-exempt income 6.25. Relationships among various rules about ordinary income Division 8--Deductions 8.1. General deductions 8.5. Specific deductions 8.10. No double deductions PART 1-4--CHECKLISTS OF WHAT IS COVERED BY CONCEPTS USED IN THE CORE PROVISIONS Division 9--Entities that must pay income tax 9.1A. Effect of this Division 9.1. List of entities 9.5. Entities that work out their income tax by reference to something other than taxable income Division 10--Particular kinds of assessable income 10.1. Effect of this Division 10.5. List of provisions about assessable income Division 11--Particular kinds of non-assessable income Subdivision 11-A--Lists of classes of exempt income 11.1A. Effect of this Subdivision 11.1. Overview 11.5. Entities that are exempt, no matter what kind of ordinary or statutory income they have 11.10. Ordinary or statutory income which is exempt, no matter whose it is 11.15. Ordinary or statutory income which is exempt only if it is derived by certain entities Subdivision 11-B--Particular kinds of non-assessable non-exempt income 11.50. Effect of this Subdivision 11.55. List of non-assessable non-exempt income provisions Division 12--Particular kinds of deductions 12.1. Effect of this Division 12.5. List of provisions about deductions Division 13--Tax offsets 13.1A. Effect of this Division 13.1. List of tax offsets CHAPTER 2--Liability rules of general application PART 2-1--ASSESSABLE INCOME Division 15--Some items of assessable income 15.1. What this Division is about 15.2. Allowances and other things provided in respect of employment or services 15.3. Return to work payments 15.5. Accrued leave transfer payments 15.10. Bounties and subsidies 15.15. Profit-making undertaking or plan 15.20. Royalties 15.22. Payments made to members of a copyright collecting society 15.23. Payments of resale royalties by resale royalty collecting society 15.25. Amount received for lease obligation to repair 15.30. Insurance or indemnity for loss of assessable income 15.35. Interest on overpayments and early payments of tax 15.40. Providing mining, quarrying or prospecting information 15.45. Amounts paid under forestry agreements 15.46. Amounts paid under forestry managed investment schemes 15.50. Work in progress amounts 15.55. Certain amounts paid under funeral policy 15.60. Certain amounts paid under scholarship plan 15.65. Sugar industry exit grants 15.70. Reimbursed car expenses 15.75. Bonuses 15.80. Employer FHSA contributions etc. Division 17--Effect of GST etc 17.1. What this Division is about 17.5. GST and increasing adjustments 17.10. Certain decreasing adjustments 17.15. Elements in calculation of amounts 17.20. GST groups and GST joint ventures 17.30. Special credits because of indirect tax transition 17.35. Certain sections not to apply to certain assets or expenditure Division 20--Amounts included to reverse the effect of past deductions 20.1. What this Division is about 20.5. Other provisions that reverse the effect of deductions Subdivision 20-A--Insurance, indemnity or other recoupment for deductible expenses 20.10. What this Subdivision is about 20.15. How to use this Subdivision 20.20. Assessable recoupments 20.25. What is recoupment? 20.30. Tables of deductions for which recoupments are assessable 20.35. If the expense is deductible in a single income year 20.40. If the expense is deductible over 2 or more income years 20.45. Effect of balancing charge 20.50. If the expense is only partially deductible 20.55. Meaning of previous recoupment law 20.60. If you are the only entity that can deduct an amount for the loss or outgoing 20.65. If 2 or more entities can deduct amounts for the loss or outgoing Subdivision 20-B--Disposal of a car for which lease payments have been deducted 20.100. What this Subdivision is about 20.105. Map of this Subdivision 20.110. Disposal of a leased car for profit 20.115. Working out the profit on the disposal 20.120. Meaning of notional depreciation 20.125. Disposal of a leased car for profit 20.130. Successive leases 20.135. No amount included if earlier disposal for market value 20.140. Reducing the amount to be included if there has been an earlier disposal 20.145. No amount included if you inherited the car 20.150. Reducing the amount to be included if another provision requires you to include an amount for the disposal 20.155. Exception for particular cars taken on hire 20.157. Exception for small business entities 20.160. Disposal of an interest in a car PART 2-5--RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS Division 25--Some amounts you can deduct 25.1. What this Division is about 25.5. Tax-related expenses 25.10. Repairs 25.15. Amount paid for lease obligation to repair 25.20. Lease document expenses 25.25. Borrowing expenses 25.30. Expenses of discharging a mortgage 25.35. Bad debts 25.40. Loss from profit-making undertaking or plan 25.45. Loss by theft etc. 25.47. Misappropriation where a balancing adjustment event occurs 25.50. Payments of pensions, gratuities or retiring allowances 25.55. Payments to associations 25.60. Parliament election expenses 25.65. Local government election expenses 25.70. Deduction for election expenses does not extend to entertainment 25.75. Rates and land taxes on premises used to produce mutual receipts 25.85. Certain returns in respect of debt interests 25.90. Deduction relating to foreign non-assessable non-exempt income 25.95. Deduction for work in progress amounts 25.105. Deductions for United Medical Protection Limited support payments 25.100. Travel between workplaces 25.110. Capital expenditure to terminate lease etc. Division 26--Some amounts you cannot deduct, or cannot deduct in full 26.1. What this Division is about 26.5. Penalties 26.10. Leave payments 26.15. Franchise fees windfall tax 26.17. Commonwealth places windfall tax 26.20. Assistance to students 26.22. Political contributions and gifts 26.25. Interest or royalty 26.26. Non-share distributions and dividends 26.30. Relative's travel expenses 26.35. Reducing deductions for amounts paid to related entities 26.40. Maintaining your family 26.45. Recreational club expenses 26.47. Non-business boating activities 26.50. Expenses for a leisure facility 26.52. Bribes to foreign public officials 26.53. Bribes to public officials 26.54. Expenditure relating to illegal activities 26.55. Limit on deductions 26.60. Superannuation contributions surcharge 26.65. Termination payments surcharge 26.68. Loss from disposal of eligible venture capital investments 26.70. Loss from disposal of venture capital equity 26.75. Excess contributions tax cannot be deducted 26.80. Financing costs on loans to pay superannuation contribution 26.85. Borrowing costs on loans to pay life insurance premiums 26.90. Superannuation supervisory levy 26.95. Superannuation guarantee charge Division 27--Effect of input tax credits etc 27.1. What this Division is about Subdivision 27-A--General 27.5. Input tax credits and decreasing adjustments 27.10. Certain increasing adjustments 27.15. GST payments 27.20. Elements in calculation of amounts 27.25. GST groups and GST joint ventures 27.35. Certain sections not to apply to certain assets or expenditure Subdivision 27-B--Effect of input tax credits etc 27.80. Cost or opening adjustable value of depreciating assets reduced for input tax credits 27.85. Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments 27.87. Certain decreasing adjustments included in assessable income 27.90. Cost or opening adjustable value of depreciating assets increased: increasing adjustments 27.92. Certain increasing adjustments can be deducted 27.95. Balancing adjustment events 27.100. Pooling 27.105. Other Division 40 expenditure 27.110. Input tax credit etc. relating to 2 or more things Division 28--Car expenses 28.1. What this Division is about 28.5. Map of this Division Subdivision 28-A--Deductions for car expenses 28.10. Application of Division 28 28.12. Car expenses 28.13. Meaning of car expense Subdivision 28-B--Choosing which method to use 28.14. What this Subdivision is about 28.15. Choosing among the 4 methods 28.20. Rules governing choice of method Subdivision 28-C--The 28.25. How to calculate your deduction 28.30. Capital allowances 28.35. Substantiation Subdivision 28-D--The 28.45. How to calculate your deduction 28.50. Eligibility 28.55. Capital allowances 28.60. Substantiation Subdivision 28-E--The 28.70. How to calculate your deduction 28.75. Eligibility 28.80. Substantiation Subdivision 28-F--The 28.90. How to calculate your deduction 28.95. Eligibility 28.100. Substantiation Subdivision 28-G--Keeping a log book 28.105. What this Subdivision is about 28.110. Steps for keeping a log book 28.115. Income years for which you need to keep a log book 28.120. Choosing the 12 week period for a log book 28.125. How to keep a log book 28.130. Replacing one car with another Subdivision 28-H--Odometer records for a period 28.135. What this Subdivision is about 28.140. How to keep odometer records for a car for a period Subdivision 28-I--Retaining the log book and odometer records 28.150. Retaining the log book for the retention period 28.155. Retaining odometer records Subdivision 28-J--Situations where you cannot use, or don't need to use, one of the 4 methods 28.160. What this Subdivision is about 28.165. Exception for particular cars taken on hire 28.170. Exception for particular cars used in particular ways 28.175. Further miscellaneous exceptions 28.180. Car expenses related to award transport payments 28.185. Application of Subdivision 28-J to recipients and payers of certain withholding payments Division 30--Gifts or contributions 30.1. What this Division is about 30.5. How to find your way around this Division 30.10. Index Subdivision 30-A--Deductions for gifts or contributions 30.15. Table of gifts or contributions that you can deduct 30.17. Requirements for certain recipients Subdivision 30-B--Tables of recipients for deductible gifts 30.20. Health 30.25. Education 30.30. Gifts that must be for certain purposes 30.35. Gifts to a public fund established to benefit a rural school hostel building must satisfy certain requirements 30.37. Scholarship etc. funds [see Note 4] 30.40. Research 30.45. Welfare and rights 30.45A. Australian disaster relief funds--declarations by Minister 30.46. Australian disaster relief funds--declarations under State and Territory law 30.50. Defence 30.55. The environment 30.60. Gifts to a National Parks body or conservation body must satisfy certain requirements 30.65. Industry, trade and design 30.70. The family 30.75. Marriage education organisations must be approved 30.80. International affairs 30.85. Developing country relief funds 30.86. Developed country disaster relief funds 30.90. Sports and recreation 30.95. Philanthropic trusts 30.100. Cultural organisations 30.102. Fire and emergency services 30.105. Other recipients Subdivision 30-BA--Endorsement of deductible gift recipients 30.115. What this Subdivision is about 30.120. Endorsement by Commissioner 30.125. Entitlement to endorsement 30.130. Maintaining a gift fund 30.180. How this Subdivision applies to government entities Subdivision 30-C--Rules applying to particular gifts of property 30.200. Getting written valuations 30.205. Proceeds of the sale would have been assessable 30.210. Approved valuers 30.212. Valuations by the Commissioner 30.215. How much you can deduct 30.220. Reducing the amount you can deduct 30.225. Gift of property by joint owners Subdivision 30-CA--Administrative requirements relating to ABNs 30.226. What this Subdivision is about 30.227. Entities to which this Subdivision applies 30.228. Content of receipt for gift or contribution 30.229. Australian Business Register must show deductibility of gifts to deductible gift recipient Subdivision 30-D--Testamentary gifts under the Cultural Bequests Program 30.230. Testamentary gifts of property 30.235. Getting a certificate 30.240. Limit on total value of gifts for an income year Subdivision 30-DA--Donations to political parties and independent candidates and members 30.241. What this Subdivision is about 30.242. Deduction for political contributions and gifts 30.243. Amount of the deduction 30.244. When an individual is an independent candidate 30.245. When an individual is an independent member Subdivision 30-DB--Spreading certain gift and covenant deductions over up to 5 income years 30.246. What this Subdivision is about 30.247. Gifts and covenants for which elections can be made 30.248. Making an election 30.249. Effect of election 30.249A. Requirements--environmental property gifts 30.249B. Requirements--heritage property gifts 30.249C. Requirements--certain cultural property gifts 30.249D. Requirements--conservation covenants Subdivision 30-E--Register of environmental organisations 30.250. What this Subdivision is about 30.255. Establishing the register 30.260. Meaning of environmental organisation 30.265. Its principal purpose must be protecting the environment 30.270. Other requirements it must satisfy 30.275. Further requirement for a body corporate or a co-operative society 30.280. What must be on the register 30.285. Removal from the register Subdivision 30-EA--Register of harm prevention charities 30.286. What this Subdivision is about 30.287. Establishing the register 30.288. Meaning of harm prevention charity 30.289. Principal activity--promoting the prevention or control of harm or abuse 30.289A. Other requirements 30.289B. What must be on the register 30.289C. Removal from the register Subdivision 30-F--Register of cultural organisations 30.290. What this Subdivision is about 30.295. Establishing the register 30.300. Meaning of cultural organisation 30.305. What must be on the register 30.310. Removal from the register Subdivision 30-G--Index to this Division 30.315. Index 30.320. Effect of this Subdivision Division 31--Conservation covenants 31.1. What this Division is about 31.5. Deduction for entering into conservation covenant 31.10. Requirements for fund, authority or institution 31.15. Valuations by the Commissioner Division 32--Entertainment expenses 32.1. What this Division is about Subdivision 32-A--No deduction for entertainment expenses 32.5. No deduction for entertainment expenses 32.10. Meaning of entertainment 32.15. No deduction for property used for providing entertainment Subdivision 32-B--Exceptions 32.20. The main exception--fringe benefits 32.25. The tables set out the other exceptions 32.30. Employer expenses 32.35. Seminar expenses 32.40. Entertainment industry expenses 32.45. Promotion and advertising expenses 32.50. Other expenses Subdivision 32-C--Definitions relevant to the exceptions 32.55. In-house dining facility (employer expenses table items 1.1 and 1.2) 32.60. Dining facility (employer expenses table item 1.3) 32.65. Seminars (seminar expenses table item 2.1) Subdivision 32-D--In-house dining facilities 32.70. $30 is assessable for each meal provided to non-employee in an in-house dining facility Subdivision 32-E--Anti-avoidance 32.75. Commissioner may treat you as having incurred entertainment expense Subdivision 32-F--Special rules for companies and partnerships 32.80. Company directors 32.85. Directors, employees and property of wholly-owned group company 32.90. Partnerships Division 34--Non-compulsory uniforms 34.1. What this Division is about 34.3. What you need to read Subdivision 34-C--(which is about registering the design of a non-compulsory uniform), starting at section 34-25; and Subdivision 34-D--(which is about appeals from Industry Secretary's decision), starting at section 34-40. Subdivision 34-A--Application of Division 34 34.5. This Division applies to employees and others 34.7. This Division applies to employers and others Subdivision 34-B--Deduction for your non-compulsory uniform 34.10. What you can deduct 34.15. What is a non-compulsory uniform? 34.20. What are occupation specific clothing and protective clothing? Subdivision 34-C--Registering the design of a non-compulsory uniform 34.25. Application to register the design 34.30. Industry Secretary's decision on application 34.33. Written notice of decision 34.35. When uniform becomes registered Subdivision 34-D--Appeals from Industry Secretary's decision 34.40. Review of decisions by the Administrative Appeals Tribunal Subdivision 34-E--The Register of Approved Occupational Clothing 34.45. Keeping of the Register 34.50. Changes to the Register Subdivision 34-F--Approved occupational clothing guidelines 34.55. Approved occupational clothing guidelines Subdivision 34-G--The Industry Secretary 34.60. Industry Secretary to give Commissioner information about entries 34.65. Delegation of powers by Industry Secretary Division 35--Deferral of losses from non-commercial business activities 35.1. What this Division is about 35.5. Object 35.10. Deferral of deductions from non-commercial business activities 35.15. Modification if you have exempt income 35.20. Modification if you become bankrupt 35.25. Application of Division to certain partnerships 35.30. Assessable income test 35.35. Profits test 35.40. Real property test 35.45. Other assets test 35.50. Apportionment 35.55. Commissioner's discretion Division 36--Tax losses of earlier income years 36.1. What this Division is about Subdivision 36-A--Deductions for tax losses of earlier income years 36.10. How to calculate a tax loss for an income year 36.15. How to deduct tax losses of entities other than corporate tax entities 36.17. How to deduct tax losses of corporate tax entities 36.20. Net exempt income 36.25. Special rules about tax losses Subdivision 36-B--Effect of you becoming bankrupt 36.30. What this Subdivision is about 36.35. No deduction for tax loss incurred before bankruptcy 36.40. Deduction for amounts paid for debts incurred before bankruptcy 36.45. Limit on deductions for amounts paid Subdivision 36-C--Excess franking offsets 36.50. What this Subdivision is about 36.55. Converting excess franking offsets into tax loss PART 2-10----CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE Division 40--Capital allowances 40.1. What this Division is about 40.10. Simplified outline of this Division Subdivision 40-A--Objects of Division 40.15. Objects of Division Subdivision 40-B--Core provisions 40.20. What this Subdivision is about 40.25. Deducting amounts for depreciating assets 40.30. What a depreciating asset is 40.35. Jointly held depreciating assets 40.40. Meaning of hold a depreciating asset 40.45. Assets to which this Division does not apply 40.50. Assets for which you deduct under another Subdivision 40.53. Alterations etc. to certain depreciating assets 40.55. Use of certain car methods 40.60. When a depreciating asset starts to decline in value 40.65. Choice of methods to work out the decline in value 40.70. Diminishing value method 40.72. Diminishing value method for post-9 May 2006 assets 40.75. Prime cost method 40.80. When you can deduct the asset's cost 40.85. Meaning of adjustable value and opening adjustable value of a depreciating asset 40.90. Debt forgiveness 40.95. Choice of determining effective life 40.100. Commissioner's determination of effective life 40.102. Capped life of certain depreciating assets 40.105. Self-assessing effective life 40.110. Recalculating effective life 40.115. Splitting a depreciating asset 40.120. Replacement spectrum licences 40.125. Merging depreciating assets 40.130. Choices 40.135. Certain anti-avoidance provisions 40.140. Getting tax information from associates Subdivision 40-C--Cost 40.170. What this Subdivision is about 40.175. Cost Subdivision 27-B;-- 40.180. First element of cost 40.185. Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 40.190. Second element of cost 40.195. Apportionment of cost 40.200. Exclusion from cost 40.205. Cost of a split depreciating asset 40.210. Cost of merged depreciating assets 40.215. Adjustment: double deduction 40.220. Cost reduced by amounts not of a capital nature 40.225. Adjustment: acquiring a car at a discount 40.230. Adjustment: car limit Subdivision 40-D--Balancing adjustments 40.280. What this Subdivision is about 40.285. Balancing adjustments 40.290. Reduction for non-taxable use 40.292. Adjustments--assets used for both general tax purposes and R&D activities 40.293. Adjustments--partnership assets used for both general tax purposes and R&D activities 40.295. Meaning of balancing adjustment event 40.300. Meaning of termination value 40.305. Amount you are taken to have received under a balancing adjustment event 40.310. Apportionment of termination value 40.320. Car to which section 40-225 applies 40.325. Adjustment: car limit 40.335. Deduction for in-house software where you will never use it 40.340. Roll-over relief 40.345. What the roll-over relief is 40.350. Additional consequences 40.360. Notice to allow transferee to work out how this Division applies 40.365. Involuntary disposals 40.370. Balancing adjustments where there has been use of different car expense methods Subdivision 40-E--Low-value and software development pools 40.420. What this Subdivision is about 40.425. Allocating assets to a low-value pool 40.430. Rules for assets in low-value pools 40.435. Private or exempt use of assets 40.440. How you work out the decline in value of assets in low-value pools 40.445. Balancing adjustment events 40.450. Software development pools 40.455. How to work out your deduction 40.460. Your assessable income includes consideration for pooled software Subdivision 40-F--Primary production depreciating assets 40.510. What this Subdivision is about 40.515. Water facilities and horticultural plants 40.520. Meaning of water facility and horticultural plant 40.525. Conditions 40.530. When a water facility or horticultural plant starts to decline in value 40.535. Meaning of horticulture and commercial horticulture 40.540. How you work out the decline in value for water facilities 40.545. How you work out the decline in value for horticultural plants 40.555. Amounts you cannot deduct 40.560. Non-arm's length transactions 40.565. Extra deduction for destruction of a horticultural plant 40.570. How this Subdivision applies to partners and partnerships 40.575. Getting tax information if you acquire a horticultural plant Subdivision 40-G--Capital expenditure of primary producers and other landholders 40.625. What this Subdivision is about 40.630. Landcare operations 40.635. Meaning of landcare operation 40.640. Meaning of approved management plan 40.645. Electricity and telephone lines 40.650. Amounts you cannot deduct under this Subdivision 40.655. Meaning of connecting power to land or upgrading the connection and metering point 40.660. Non-arm's length transactions 40.665. How this Subdivision applies to partners and partnerships 40.670. Approval of persons as farm consultants 40.675. Review of decisions relating to approvals Subdivision 40-H--Capital expenditure that is immediately deductible 40.725. What this Subdivision is about 40.730. Deduction for expenditure on exploration or prospecting 40.735. Deduction for expenditure on mining site rehabilitation 40.740. Meaning of ancillary mining activities and mining building site 40.745. No deduction for certain expenditure 40.750. Deduction for payments of petroleum resource rent tax 40.755. Environmental protection activities 40.760. Limits on deductions from environmental protection activities 40.765. Non-arm's length transactions Subdivision 40-I--Capital expenditure that is deductible over time 40.825. What this Subdivision is about 40.830. Project pools 40.832. Project pools for post-9 May 2006 projects 40.835. Reduction of deduction 40.840. Meaning of project amount 40.845. Project life 40.855. When you start to deduct amounts for a project pool 40.860. Meaning of mining capital expenditure 40.865. Meaning of transport capital expenditure 40.870. Meaning of transport facility 40.875. Meaning of processed minerals and minerals treatment 40.880. Business related costs 40.885. Non-arm's length transactions Subdivision 40-J--Capital expenditure for the establishment of trees in carbon sink forests 40.1000. What this Subdivision is about 40.1005. Deduction for expenditure for establishing trees in carbon sink forests 40.1010. Expenditure for establishing trees in carbon sink forests 40.1015. Carbon sequestration by trees 40.1020. Certain expenditure disregarded 40.1025. Non-arm's length transactions Division 41--Additional deduction for certain new business investment 41.1. What this Division is about 41.5. Object of Division 41.10. Entitlement to deduction for investment 41.15. Amount of deduction 41.20. Recognised new investment amount 41.25. Investment commitment time 41.30. First use time 41.35. New investment threshold Division 43--Deductions for capital works 43.1. What this Division is about 43.2. Key concepts used in this Division Subdivision 43-A--Key operative provisions 43.5. What this Subdivision is about 43.10. Deductions for capital works 43.15. Amount you can deduct 43.20. Capital works to which this Division applies 43.25. Rate of deduction 43.30. No deduction until construction is complete 43.35. Requirement for registration under the Industry Research and Development Act 43.40. Deduction for destruction of capital works 43.45. Certain anti-avoidance provisions 43.50. Links and signposts to other parts of the Act 43.55. Anti-avoidance--arrangement etc. with tax-exempt entity Subdivision 43-B--Establishing the deduction base 43.60. What this Subdivision is about 43.65. Explanatory material 43.70. What is construction expenditure? 43.72. Meaning of forestry road, timber operation and timber mill building 43.75. Construction expenditure area 43.80. When capital works begin 43.85. Pools of construction expenditure 43.90. Table of intended use at time of completion of construction 43.95. Meaning of hotel building and apartment building 43.100. Certificates by Innovation Australia Subdivision 43-C--Your area and your construction expenditure 43.105. What this Subdivision is about 43.110. Explanatory material 43.115. Your area and your construction expenditure--owners 43.120. Your area and your construction expenditure--lessees and quasi-ownership right holders 43.125. Lessees' or right holders' pools can revert to owner 43.130. Identifying your area on acquisition or disposal Subdivision 43-D--Deductible uses of capital works 43.135. What this Subdivision is about 43.140. Using your area in a deductible way 43.145. Using your area in the 4% manner 43.150. Meaning of industrial activities Subdivision 43-E--Special rules about uses 43.155. What this Subdivision is about 43.160. Your area is used for a purpose if it is maintained ready for use for the purpose 43.165. Temporary cessation of use 43.170. Own use--capital works other than hotel and apartment buildings 43.175. Own use--hotel and apartment buildings 43.180. Special rules for hotel and apartment buildings 43.185. Residential or display use 43.190. Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house 43.195. Use for R&D activities must be in connection with a business Subdivision 43-F--Calculation of deduction 43.200. What this Subdivision is about 43.205. Explanatory material 43.210. Deduction for capital works begun after 26 February 1992 43.215. Deduction for capital works begun before 27 February 1992 43.220. Capital works taken to have begun earlier for certain purposes Subdivision 43-G--Undeducted construction expenditure 43.225. What this Subdivision is about 43.230. Calculating undeducted construction expenditure--common step 43.235. Post-26 February 1992 undeducted construction expenditure 43.240. Pre-27 February 1992 undeducted construction expenditure Subdivision 43-H--Balancing deduction on destruction of capital works 43.245. What this Subdivision is about 43.250. The amount of the balancing deduction 43.255. Amounts received or receivable 43.260. Apportioning amounts received for destruction Division 45--Disposal of leases and leased plant 45.1. What this Division is about 45.5. Disposal of leased plant or lease 45.10. Disposal of interest in partnership 45.15. Disposal of shares in 100% subsidiary that leases plant 45.20. Disposal of shares in 100% subsidiary that leases plant in partnership 45.25. Group members liable to pay outstanding tax 45.30. Reduction for certain plant acquired before 21.9.99 45.35. Limit on amount included for plant for which there is a CGT exemption 45.40. Meaning of plant and written down value PART 2-15----NON-ASSESSABLE INCOME Division 50--Exempt entities Subdivision 50-A--Various exempt entities 50.1. Entities whose ordinary income and statutory income is exempt 50.5. Charity, education, science and religion 50.10. Community service 50.15. Employees and employers 50.20. Funds contributing to other funds 50.25. Government 50.30. Health 50.35. Mining 50.40. Primary and secondary resources, and tourism 50.45. Sports, culture and recreation 50.50. Special conditions for items 1.1 and 1.2 50.52. Special condition for items 1.1, 1.5, 1.5A, 1.5B and 4.1 50.55. Special conditions for items 1.3, 1.4, 6.1 and 6.2 50.57. Special condition for item 1.5 50.60. Special conditions for items 1.5A and 1.5B 50.65. Special conditions for item 1.6 50.70. Special conditions for items 1.7, 2.1, 9.1 and 9.2 50.72. Special condition for item 4.1 50.75. Certain distributions may be made overseas 50.80. Testamentary trusts may be treated as 2 trusts Subdivision 50-B--Endorsing charitable entities as exempt from income tax 50.100. What this Subdivision is about 50.105. Endorsement by Commissioner 50.110. Entitlement to endorsement Division 51--Exempt amounts 51.1. Amounts of ordinary income and statutory income that are exempt 51.5. Defence 51.10. Education and training 51.30. Welfare 51.32. Compensation payments for loss of tax exempt payments 51.33. Compensation payments for loss of pay and/or allowances as a Defence reservist 51.35. Payments to a full-time student at a school, college or university 51.40. Payments to a secondary student 51.42. Bonuses for early completion of an apprenticeship 51.43. Income collected or derived by copyright collecting society 51.45. Income collected or derived by resale royalty collecting society 51.50. Maintenance payments to a spouse or child 51.52. Income derived from eligible venture capital investments by ESVCLPs 51.54. Gain or profit from disposal of eligible venture capital investments 51.55. Gain or profit from disposal of venture capital equity 51.57. Interest on judgment debt relating to personal injury 51.60. Prime Minister's Prizes Division 52--Certain pensions, benefits and allowances are exempt from income tax 52.1. What this Division is about Subdivision 52-A--Exempt payments under the Social Security Act 1991 52.5. What this Subdivision is about 52.10. How much of a social security payment is exempt? 52.15. Supplementary amounts of payments 52.20. Tax-free amount of an ordinary payment after the death of your partner 52.25. Tax-free amount of certain bereavement lump sum payments 52.30. Tax-free amount of certain other bereavement lump sum payments 52.35. Tax-free amount of a lump sum payment made because of the death of a person you are caring for 52.40. Provisions of the Social Security Act 1991 under which payments are made Subdivision 52-B--Exempt payments under the Veterans' Entitlements Act 1986 52.60. What this Subdivision is about 52.65. How much of a veterans' affairs payment is exempt? 52.70. Supplementary amounts of payments 52.75. Provisions of the Veterans' Entitlements Act 1986 under which payments are made Subdivision 52-C--Exempt payments made because of the Veterans' Entitlements 52.100. What this Subdivision is about 52.105. Supplementary amount of a payment made under the Repatriation Act 1920 is exempt 52.110. Other exempt payments Subdivision 52-CA--Exempt payments under the Military Rehabilitation and Compensation Act 2004 52.112. What this Subdivision is about 52.114. How much of a payment under the Military Rehabilitation and Compensation Act is exempt? Subdivision 52-CB--Exempt payments under the Australian Participants in British Nuclear Tests 52.117. Payments of travelling expenses are exempt Subdivision 52-D--Exempt payments made by the Commonwealth to reimburse certain expenditure 52.125. Private health insurance incentive payments are exempt Subdivision 52-E--Exempt payments under the ABSTUDY scheme 52.130. What this Subdivision is about 52.131. Payments under ABSTUDY scheme 52.132. Supplementary amount of payment 52.133. Tax-free amount of ordinary payment on death of partner if no bereavement payment payable 52.134. Tax-free amount if you receive a bereavement lump sum payment Subdivision 52-F--Exemption of Commonwealth education or training payments 52.140. Supplementary amount of a Commonwealth education or training payment is exempt 52.145. Meaning of Commonwealth education or training payment Subdivision 52-G--Exempt payments under the A New Tax System 52.150. Family assistance payments are exempt Subdivision 52-H--Other exempt payments 52.160. Economic security strategy payments are exempt 52.165. Household stimulus payments are exempt 52.170. Outer Regional and Remote payments under the Helping Children with Autism package are exempt 52.172. Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt 52.175. Continence aids payments are exempt Division 53--Various exempt payments 53.1. What this Division is about 53.10. Exemption of various types of payments 53.15. Supplementary amount of exceptional circumstances relief payment or farm help income support 53.20. Exemption of similar Australian and United Kingdom veterans' payments Division 54--Exemption for certain payments made under structured settlements and structured orders 54.1. What this Division is about Subdivision 54-A--Definitions 54.5. Definitions 54.10. Meaning of structured settlement and structured order Subdivision 54-B--Tax exemption for personal injury annuities 54.15. Personal injury annuity exemption for injured person 54.20. Lump sum compensation etc. would not have been assessable 54.25. Requirements of the annuity instrument 54.30. Requirements for payments of the annuity 54.35. Payments during the guarantee period on the death of the injured person 54.40. Requirement for minimum monthly level of support Subdivision 54-C--Tax exemption for personal injury lump sums 54.45. Personal injury lump sum exemption for injured person 54.50. Lump sum compensation would not have been assessable 54.55. Requirements of the instrument under which the lump sum is paid 54.60. Requirements for payments of the lump sum Subdivision 54-D--Miscellaneous 54.65. Exemption for certain payments to reversionary beneficiaries 54.70. Special provisions about trusts 54.75. Minister to arrange for review and report Division 55--Payments that are not exempt from income tax 55.1. What this Division is about 55.5. Occupational superannuation payments 55.10. Education entry payments Division 58--Capital allowances for depreciating assets previously owned by an exempt entity 58.1. What this Division is about Subdivision 58-A--Application 58.5. Application of Division 58.10. When an asset is acquired in connection with the acquisition of a business Subdivision 58-B--Calculating decline in value of privatised assets under Division 40 58.60. Purpose of rules in this Subdivision 58.65. Choice of method to work out cost of privatised asset 58.70. Application of Division 40 58.75. Meaning of notional written down value 58.80. Meaning of undeducted pre-existing audited book value 58.85. Pre-existing audited book value of depreciating asset 58.90. Method and effective life for transition entity Division 59--Particular amounts of non-assessable non-exempt income 59.1. What this Division is about 59.10. Compensation under firearms surrender arrangements 59.15. Mining payments 59.20. Taxable amounts relating to franchise fees windfall tax 59.25. Taxable amounts relating to Commonwealth places windfall tax 59.30. Amounts you must repay 59.35. Amounts that would be mutual receipts but for prohibition on distributions to members 59.40. Issue of rights 59.45. Tax bonus for the 2007-08 income year 59.55. 2010-11 floods--recovery grants for small businesses and primary producers 59.60. Cyclone Yasi--recovery grants for small businesses and primary producers PART 2-20----TAX OFFSETS Division 61--Generally applicable tax offsets Subdivision 61-G--Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 61.200. What this Subdivision is about 61.205. Entitlement to the private health insurance tax offset 61.210. Amount of the private health insurance tax offset 61.215. Tax offset after a person 65 years or over ceases to be covered by policy 61.220. How to work out the incentive amount Subdivision 61-I--First child tax offset 61.350. What this Subdivision is about 61.355. Who is entitled to a tax offset under this section 61.360. What is a child event? 61.365. First child only 61.370. Another carer with entitlement for another child 61.375. Selection rules 61.380. Special rules for death of first child 61.385. You may transfer your entitlement to a tax offset 61.390. Transfer is irrevocable 61.395. Transferor is not entitled to tax offset 61.400. Transferee is entitled to tax offset 61.405. How to claim a tax offset for a child 61.410. Claim is irrevocable 61.415. Formula for working out amount of tax offset 61.420. Component of formula--entitlement amount 61.425. Component of formula--total of the entitlement days 61.430. What is your base year? 61.440. Additional tax offset if a child is in your care before you legally adopt the child 61.445. When a child is first in your care 61.450. What is your base year if a child is in your care before you legally adopt the child? 61.455. Old Subdivision applies if you would be worse off Subdivision 61-IA--Child care tax offset 61.460. What this Subdivision is about 61.465. Object of this Subdivision 61.470. Who is entitled to the tax offset 61.475. Meaning of approved child care 61.480. Meaning of entitled to child care benefit and entitlement to child care benefit 61.485. Amount of the child care tax offset 61.490. Component of formula--approved child care fees 61.495. Component of formula--child care offset limit 61.496. Entitlement to transfer 61.497. Form of transfer Subdivision 61-J--25 61.500. What this Subdivision is about 61.505. 25% entrepreneurs' tax offset: individual or company 61.510. 25% entrepreneurs' tax offset: partner in a partnership 61.515. 25% entrepreneurs' tax offset: trustee of a trust 61.520. 25% entrepreneurs' tax offset: beneficiary of a trust 61.523. 25% entrepreneurs' tax offset--reduction for non-small business income 61.525. Meaning of net small business income and small business entity turnover Subdivision 61-K--Mature age worker tax offset 61.550. What this Subdivision is about 61.555. Object of this Subdivision 61.560. Entitlement to the mature age worker tax offset 61.565. The amount of the tax offset 61.570. Definition of net income from working Subdivision 61-L--Tax offset for Medicare levy surcharge 61.575. What this Subdivision is about 61.580. Entitlement to a tax offset 61.585. The amount of a tax offset 61.590. Definition of MLS lump sums Subdivision 61-M--Education expenses tax offset 61.600. What this Subdivision is about 61.610. Entitlement to education expenses tax offset 61.620. Eligibility in respect of another individual 61.630. Schooling requirement 61.640. Education expenses 61.650. Amount of education expenses tax offset 61.660. Education expenses tax offset limit 61.670. Shared care 61.680. Excess education expenses Division 63--Common rules for tax offsets 63.1. What this Division is about 63.10. Priority rules Division 65--Tax offset carry forward rules 65.10. What this Division is about 65.30. Amount carried forward 65.35. How to apply carried forward tax offsets 65.40. When a company cannot apply a tax offset 65.50. Effect of bankruptcy 65.55. Deduction for amounts paid for debts incurred before bankruptcy Division 67--Refundable tax offset rules 67.10. What this Division is about 67.20. Which tax offsets this Division applies to 67.23. Refundable tax offsets 67.25. Refundable tax offsets--franked distributions 67.30. Refundable tax offsets--R&D PART 2-25----TRADING STOCK Division 70--Trading stock 70.1. What this Division is about 70.5. The 3 key features of tax accounting for trading stock Subdivision 70-A--What is trading stock 70.10. Meaning of trading stock Subdivision 70-B--Acquiring trading stock 70.15. In which income year do you deduct an outgoing for trading stock? 70.20. Non-arm's length transactions 70.25. Cost of trading stock is not a capital outgoing 70.30. Starting to hold as trading stock an item you already own Subdivision 70-C--Accounting for trading stock you hold at the start or end of the income year 70.35. You include the value of your trading stock in working out your assessable income and deductions 70.40. Value of trading stock at start of income year 70.45. Value of trading stock at end of income year 70.50. Valuation if trading stock obsolete etc. 70.55. Working out the cost of natural increase of live stock 70.60. Valuation of horse breeding stock 70.65. Working out the horse opening value and the horse reduction amount Subdivision 70-D--Assessable income arising from disposals of trading stock and certain other assets 70.75. What this Subdivision is about 70.80. Why the rules in this Subdivision are necessary 70.85. Application of this Subdivision to certain other assets 70.90. Assessable income on disposal of trading stock outside the ordinary course of business 70.95. Purchase price is taken to be market value 70.100. Notional disposal when you stop holding an item as trading stock 70.105. Death of owner 70.110. You stop holding an item as trading stock but still own it 70.115. Compensation for lost trading stock Subdivision 70-E--Miscellaneous 70.120. Deducting capital costs of acquiring trees PART 2-40----RULES AFFECTING EMPLOYEES AND OTHER TAXPAYERS RECEIVING PAYG WITHHOLDING PAYMENTS Division 80--General rules 80.1. What this Division is about 80.5. Holding of an office 80.10. Application to the termination of employment 80.15. Transfer of property 80.20. Payments for your benefit or at your direction or request Division 82--Employment termination payments 82.1. What this Division is about Subdivision 82-A--Employment termination payments 82.5. What this Subdivision is about 82.10. Taxation of life benefit termination payments Subdivision 82-B--Employment termination payments 82.60. What this Subdivision is about 82.65. Death benefits for dependants 82.70. Death benefits for non-dependants 82.75. Death benefits paid to trustee of deceased estate Subdivision 82-C--Key concepts 82.125. What this Subdivision is about 82.130. What is an employment termination payment? 82.135. Payments that are not employment termination payments 82.140. Tax free component of an employment termination payment 82.145. Taxable component of an employment termination payment 82.150. What is an invalidity segment of an employment termination payment? 82.155. What is a pre-July 83 segment of an employment termination payment? 82.160. What is the ETP cap amount? Division 83--Other payments on termination of employment 83.1. What this Division is about Subdivision 83-A--Unused annual leave payments 83.5. What this Subdivision is about 83.10. Unused annual leave payment is assessable 83.15. Entitlement to tax offset Subdivision 83-B--Unused long service leave payments 83.65. What this Subdivision is about 83.70. Application--long service leave 83.75. Meaning of unused long service leave payment 83.80. Taxation of unused long service leave payments 83.85. Entitlement to tax offset 83.90. Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period 83.95. How to work out amount of payment attributable to each period 83.100. How to work out unused days of long service leave for each period 83.105. How to work out long service leave accrued in each period 83.110. Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods--employment full-time and part-time 83.115. Working out used days of long service leave if leave taken at less than full pay Subdivision 83-C--Genuine redundancy payments and early retirement scheme payments 83.165. What this Subdivision is about 83.170. Tax-free treatment of genuine redundancy payments and early retirement scheme payments 83.175. What is a genuine redundancy payment? 83.180. What is an early retirement scheme payment? Subdivision 83-D--Foreign termination payments 83.230. What this Subdivision is about 83.235. Termination payments tax free--foreign resident period 83.240. Termination payments tax free--Australian resident period Subdivision 83-E--Other payments 83.290. What this Subdivision is about 83.295. Termination payments made more than 12 months after termination etc. Division 83A--Employee share schemes 83A.1. What this Division is about Subdivision 83A-A--Objects of Division and key concepts 83A.5. Objects of Division 83A.10. Meaning of ESS interest and employee share scheme Subdivision 83A-B--Immediate inclusion of discount in assessable income 83A.15. What this Subdivision is about 83A.20. Application of Subdivision 83A.25. Discount to be included in assessable income 83A.30. Amount for which discounted ESS interest acquired 83A.35. Reduction of amounts included in assessable income Subdivision 83A-C--Deferred inclusion of gain in assessable income 83A.100. What this Subdivision is about 83A.105. Application of Subdivision 83A.110. Amount to be included in assessable income 83A.115. ESS deferred taxing point--shares 83A.120. ESS deferred taxing point--rights to acquire shares 83A.125. Tax treatment of ESS interests held after ESS deferred taxing points 83A.130. Takeovers and restructures Subdivision 83A-D--Deduction for employer 83A.200. What this Subdivision is about 83A.205. Deduction for employer 83A.210. Timing of general deductions Subdivision 83A-E--Miscellaneous 83A.305. Acquisition by associates 83A.310. Forfeiture etc. of ESS interest 83A.315. Market value of ESS interest 83A.320. Interests in a trust 83A.325. Application of Division to relationships similar to employment 83A.330. Application of Division to ceasing employment 83A.335. Application of Division to stapled securities 83A.340. Application of Division to indeterminate rights PART 2-42----PERSONAL SERVICES INCOME Division 84--Introduction 84.1. What this Part is about 84.5. Meaning of personal services income 84.10. This Part does not imply that individuals are employees Division 85--Deductions relating to personal services income 85.1. What this Division is about 85.5. Object of this Division 85.10. Deductions for non-employees relating to personal services income 85.15. Deductions for rent, mortgage interest, rates and land tax 85.20. Deductions for payments to associates etc. 85.25. Deductions for superannuation for associates 85.30. Exception: personal services businesses 85.35. Exception: employees, office holders and religious practitioners 85.40. Application of Subdivision 900-B to individuals who are not employees Division 86--Alienation of personal services income 86.1. What this Division is about 86.5. A simple description of what this Division does Subdivision 86-A--General 86.10. Object of this Division 86.15. Effect of obtaining personal services income through a personal services entity 86.20. Offsetting the personal services entity's deductions against personal services income 86.25. Apportionment of entity maintenance deductions among several individuals 86.27. Deduction for net personal services income loss 86.30. Assessable income etc. of the personal services entity 86.35. Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 86.40. Salary payments shortly after an income year Subdivision 86-B--Entitlement to deductions 86.60. General rule for deduction entitlements of personal services entities 86.65. Entity maintenance deductions 86.70. Car expenses 86.75. Superannuation 86.80. Salary or wages promptly paid 86.85. Deduction entitlements of personal services entities for amounts included in an individual's assessable income 86.87. Personal services entity cannot deduct net personal services income loss 86.90. Application of Divisions 28 and 900 to personal services entities Division 87--Personal services businesses 87.1. What this Division is about 87.5. Diagram showing the operation of this Division Subdivision 87-A--General 87.10. Object of this Division 87.15. What is a personal services business? 87.18. The results test for a personal services business 87.20. The unrelated clients test for a personal services business 87.25. The employment test for a personal services business 87.30. The business premises test for a personal services business 87.35. Personal services income from Australian government agencies 87.40. Application of this Division to certain agents Subdivision 87-B--Personal services business determinations 87.60. Personal services business determinations for individuals 87.65. Personal services business determinations for personal services entities 87.70. Applying etc. for personal services business determinations 87.75. When personal services business determinations have effect 87.80. Revoking personal services business determinations 87.85. Review of decisions CHAPTER 3--Specialist liability rules PART 3-1--CAPITAL GAINS AND LOSSES: GENERAL TOPICS Division 100--A Guide to capital gains and losses 100.1. What this Division is about 100.5. Effect of this Division 100.10. Fundamentals of CGT 100.15. Overview of Steps 1 and 2 100.20. What events attract CGT? 100.25. What are CGT assets? 100.30. Does an exception or exemption apply? 100.33. Can there be a roll-over? 100.35. What is a capital gain or loss? 100.40. What factors come into calculating a capital gain or loss? 100.45. How to calculate the capital gain or loss for most CGT events 100.50. How to work out your net capital gain or loss 100.55. How do you comply with CGT? 100.60. Why keep records? 100.65. What records? 100.70. How long you need to keep records Division 102--Assessable income includes net capital gain 102.1. What this Division is about 102.3. Concessions in working out your net capital gain 102.5. Assessable income includes net capital gain 102.10. How to work out your net capital loss 102.15. How to apply net capital losses 102.20. Ways you can make a capital gain or a capital loss 102.22. Amounts of capital gains and losses 102.23. CGT event still happens even if gain or loss disregarded 102.25. Order of application of CGT events 102.30. Exceptions and modifications Division 103--General rules 103.1. What this Division is about 103.5. Giving property as part of a transaction 103.10. Entitlement to receive money or property 103.15. Requirement to pay money or give property 103.25. Choices 103.30. Reduction of cost base etc. by net input tax credits Division 104--CGT events 104.1. What this Division is about 104.5. Summary of the CGT events Subdivision 104-A--Disposals 104.10. Disposal of a CGT asset: CGT event A1 Subdivision 104-B--Use and enjoyment before title passes 104.15. Use and enjoyment before title passes: CGT event B1 Subdivision 104-C--End of a CGT asset 104.20. Loss or destruction of a CGT asset: CGT event C1 104.25. Cancellation, surrender and similar endings: CGT event C2 104.30. End of option to acquire shares etc.: CGT event C3 Subdivision 104-D--Bringing into existence a CGT asset 104.35. Creating contractual or other rights: CGT event D1 104.40. Granting an option: CGT event D2 104.45. Granting a right to income from mining: CGT event D3 104.47. Conservation covenants: CGT event D4 Subdivision 104-E--Trusts 104.55. Creating a trust over a CGT asset: CGT event E1 104.60. Transferring a CGT asset to a trust: CGT event E2 104.65. Converting a trust to a unit trust: CGT event E3 104.70. Capital payment for trust interest: CGT event E4 104.71. Adjustment of non-assessable part 104.72. Reducing your capital gain under CGT event E4 if you are a trustee 104.75. Beneficiary becoming entitled to a trust asset: CGT event E5 104.80. Disposal to beneficiary to end income right: CGT event E6 104.85. Disposal to beneficiary to end capital interest: CGT event E7 104.90. Disposal by beneficiary of capital interest: CGT event E8 104.95. Making a capital gain 104.100. Making a capital loss 104.105. Creating a trust over future property: CGT event E9 Subdivision 104-F--Leases 104.110. Granting a lease: CGT event F1 104.115. Granting a long-term lease: CGT event F2 104.120. Lessor pays lessee to get lease changed: CGT event F3 104.125. Lessee receives payment for changing lease: CGT event F4 104.130. Lessor receives payment for changing lease: CGT event F5 Subdivision 104-G--Shares 104.135. Capital payment for shares: CGT event G1 104.145. Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 Subdivision 104-H--Special capital receipts 104.150. Forfeiture of deposit: CGT event H1 104.155. Receipt for event relating to a CGT asset: CGT event H2 Subdivision 104-I--Australian residency ends 104.160. Individual or company stops being an Australian resident: CGT event I1 104.165. Exception for individuals 104.170. Trust stops being a resident trust: CGT event I2 Subdivision 104-J--CGT events relating to roll-overs 104.175. Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 104.180. Sub-group break-up 104.182. Consolidated group break-up 104.185. Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 104.190. Modifying or extending the replacement asset period 104.195. Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 104.197. Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 104.198. Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6 Subdivision 104-K--Other CGT events 104.210. Bankrupt pays amount in relation to debt: CGT event K2 104.215. Asset passing to tax-advantaged entity: CGT event K3 104.220. CGT asset starts being trading stock: CGT event K4 104.225. Special collectable losses: CGT event K5 104.230. Pre-CGT shares or trust interest: CGT event K6 104.235. Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7 104.240. Working out capital gain or loss for CGT event K7: general case 104.245. Working out capital gain or loss for CGT event K7: pooled assets 104.250. Direct value shifts: CGT event K8 104.255. Carried interests: CGT event K9 104.260. Certain short-term forex realisation gains: CGT event K10 104.265. Certain short-term forex realisation losses: CGT event K11 104.270. Foreign hybrids: CGT event K12 Subdivision 104-L--Consolidated groups and MEC groups 104.500. Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 104.505. Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 104.510. Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3 104.515. Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 104.520. Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 104.525. Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 104.535. Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8 Division 106--Entity making the gain or loss 106.1. What this Division is about Subdivision 106-A--Partnerships 106.5. Partnerships Subdivision 106-B--Bankruptcy and liquidation 106.30. Effect of bankruptcy 106.35. Effect of liquidation Subdivision 106-C--Absolutely entitled beneficiaries 106.50. Absolutely entitled beneficiaries Subdivision 106-D--Security holders 106.60. Acts by security holders Division 108--CGT assets 108.1. What this Division is about Subdivision 108-A--What a CGT asset is 108.5. CGT assets 108.7. Interest in CGT assets as joint tenants Subdivision 108-B--Collectables 108.10. Losses from collectables to be offset only against gains from collectables 108.15. Sets of collectables 108.17. Cost base of a collectable Subdivision 108-C--Personal use assets 108.20. Losses from personal use assets must be disregarded 108.25. Sets of personal use assets 108.30. Cost base of a personal use asset Subdivision 108-D--Separate CGT assets 108.55. When is a building a separate asset from land? 108.60. Depreciating asset that is part of a building is a separate asset 108.65. Land adjacent to land acquired before 20 September 1985 108.70. When is a capital improvement a separate asset? 108.75. Capital improvements to CGT assets for which a roll-over may be available 108.80. Deciding if capital improvements are related to each other 108.85. Meaning of improvement threshold Division 109--Acquisition of CGT assets 109.1. What this Division is about Subdivision 109-A--Operative rules 109.5. General acquisition rules 109.10. When you acquire a CGT asset without a CGT event 109.15. Exceptions Subdivision 109-B--Signposts to other acquisition rules 109.50. Effect of this Subdivision 109.55. Other acquisition rules 109.60. Acquisition rules outside this Part and Part 3-3 Division 110--Cost base and reduced cost base 110.1. What this Division is about 110.5. Modifications to general rules 110.10. Rules about cost base not relevant for some CGT events Subdivision 110-A--Cost base 110.25. General rules about cost base 110.35. Incidental costs 110.36. Indexation 110.37. Expenditure forming part of cost base or element 110.38. Exclusions 110.40. Assets acquired before 7.30 pm on 13 May 1997 110.43. Partnership interests acquired before 7.30 pm on 13 May 1997 110.45. Assets acquired after 7.30 pm on 13 May 1997 110.50. Partnership interests acquired after 7.30 pm on 13 May 1997 110.53. Exceptions to application of sections 110-45 and 110-50 110.54. Debt deductions disallowed by thin capitalisation rules Subdivision 110-B--Reduced cost base 110.55. General rules about reduced cost base 110.60. Reduced cost base for partnership assets Division 112--Modifications to cost base and reduced cost base 112.1. What this Division is about 112.5. Discussion of modifications Subdivision 112-A--General modifications 112.15. General rule for replacement modifications 112.20. Market value substitution rule 112.25. Split, changed or merged assets 112.30. Apportionment rules 112.35. Assumption of liability rule 112.37. Put options Subdivision 112-B--Finding tables for special rules 112.40. Effect of this Subdivision 112.45. CGT events 112.48. Gifts acquired by associates 112.50. Main residence 112.53. Scrip for scrip roll-over 112.53AA. Statutory licences 112.53A. MDO roll-over 112.53B. Exchange of stapled ownership interests for units in a unit trust 112.53C. Water entitlement roll-overs 112.54. Demergers 112.54A. Transfer of assets between certain trusts 112.55. Effect of you dying 112.60. Bonus shares or units 112.65. Rights 112.70. Convertible interests 112.77. Exchangeable interests 112.80. Leases 112.85. Options 112.87. Residency 112.90. An asset stops being a pre-CGT asset 112.92. Demutualisation of certain entities 112.95. Transfer of tax losses and net capital losses within wholly-owned groups of companies 112.97. Modifications outside this Part and Part 3-3 Subdivision 112-C--Replacement-asset roll-overs 112.100. Effect of this Subdivision 112.105. What is a replacement-asset roll-over? 112.110. How is the cost base of the replacement asset modified? 112.115. Table of replacement-asset roll-overs Subdivision 112-D--Same-asset roll-overs 112.135. Effect of this Subdivision 112.140. What is a same-asset roll-over? 112.145. How is the cost base of the asset modified? 112.150. Table of same-asset roll-overs Division 114--Indexation of cost base 114.1. Indexing elements of cost base 114.5. When indexation relevant 114.10. Requirement for 12 months ownership 114.15. Cost base modifications 114.20. When expenditure is incurred for roll-overs Division 115--Discount capital gains and trusts' net capital gains 115.1. What this Division is about Subdivision 115-A--Discount capital gains 115.5. What is a discount capital gain? 115.10. Who can make a discount capital gain? 115.15. Discount capital gain must be made after 21 September 1999 115.20. Discount capital gain must not have indexed cost base 115.25. Discount capital gain must be on asset acquired at least 12 months before 115.30. Special rules about time of acquisition 115.32. Special rule about time of acquisition for certain replacement-asset roll-overs 115.34. Further special rule about time of acquisition for certain replacement-asset roll-overs 115.40. Capital gain resulting from agreement made within a year of acquisition 115.45. Capital gain from equity in an entity with newly acquired assets 115.50. Discount capital gain from equity in certain entities 115.55. Capital gains involving money received from demutualisation of friendly society health or life insurer Subdivision 115-B--Discount percentage 115.100. What is the discount percentage for a discount capital gain Subdivision 115-C--Rules about trusts with net capital gains 115.200. What this Division is about 115.210. When this Subdivision applies 115.215. Assessing presently entitled beneficiaries 115.220. Assessing trustees under section 98 of the Income Tax Assessment Act 1936 115.222. Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936 115.225. Attributable gain 115.227. Share of a capital gain 115.228. Specifically entitled to an amount of a capital gain 115.230. Choice for resident trustee to be specifically entitled to capital gain Subdivision 115-D--Tax relief for shareholders in listed investment companies 115.275. What this Subdivision is about 115.280. Deduction for certain dividends 115.285. Meaning of LIC capital gain 115.290. Meaning of listed investment company 115.295. Maintaining records Division 116--Capital proceeds 116.1. What this Division is about 116.5. General rules 116.10. Modifications to general rules 116.20. General rules about capital proceeds 116.25. Table of modifications to the general rules 116.30. Market value substitution rule: modification 1 116.35. Companies and trusts that are not widely held 116.40. Apportionment rule: modification 2 116.45. Non-receipt rule: modification 3 116.50. Repaid rule: modification 4 116.55. Assumption of liability rule: modification 5 116.60. Misappropriation rule: modification 6 116.65. Disposal etc. of a CGT asset the subject of an option 116.70. Option requiring both acquisition and disposal etc. 116.75. Special rule for CGT event happening to a lease 116.80. Special rule if CGT asset is shares or an interest in a trust 116.85. Section 47A of 1936 Act applying to rolled-over asset 116.95. Company changes residence from an unlisted country 116.100. Gifts of property 116.105. Conservation covenants 116.110. Roll-overs for merging superannuation funds Division 118--Exemptions 118.1. What this Division is about Subdivision 118-A--General exemptions 118.5. Cars, motor cycles and valour decorations 118.10. Collectables and personal use assets 118.12. Assets used to produce exempt income etc. 118.13. Shares in a PDF 118.20. Reducing capital gains if amount otherwise assessable 118.21. Carried interests 118.22. Superannuation lump sums and employment termination payments 118.24. Depreciating assets 118.25. Trading stock 118.27. Division 230 financial arrangements and financial arrangements to which Subdivision 250-E applies 118.30. Film copyright 118.35. R&D 118.37. Compensation, damages etc. 118.40. Expiry of a lease 118.42. Transfer of stratum units 118.45. Sale of rights to mine 118.55. Foreign currency hedging gains and losses 118.60. Certain gifts 118.65. Later distributions of personal services income 118.70. Transactions by exempt entities 118.75. Marriage or relationship breakdown settlements 118.80. Reduction of boat capital gain 118.85. Special disability trusts Subdivision 118-B--Main residence 118.100. What this Subdivision is about 118.105. Map of this Subdivision 118.110. Basic case 118.115. Meaning of dwelling 118.120. Extension to adjacent land etc. 118.125. Meaning of ownership period 118.130. Meaning of ownership interest in land or a dwelling 118.135. Moving into a dwelling 118.140. Changing main residences 118.145. Absences 118.147. Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc. 118.150. If you build, repair or renovate a dwelling 118.155. Where individual referred to in section 118-150 dies 118.160. Destruction of dwelling and sale of land 118.165. Separate CGT event for adjacent land or other structures 118.170. Spouse having different main residence 118.175. Dependent child having different main residence 118.178. Previous roll-over under Subdivision 126-A 118.180. Acquisition of dwelling from company or trust on marriage or relationship breakdown--roll-over provision applying 118.185. Partial exemption where dwelling was your main residence during part only of ownership period 118.190. Use of dwelling for producing assessable income 118.192. Special rule for first use to produce income 118.195. Dwelling acquired from a deceased estate 118.197. Special rule for surviving joint tenant 118.200. Partial exemption for deceased estate dwellings 118.205. Adjustment if dwelling inherited from deceased individual 118.210. Trustee acquiring dwelling under will 118.215. What the following provisions are about 118.218. Exemption available to trustee--main case 118.220. Exemption available to trustee--after the principal beneficiary's death 118.222. Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary's death 118.225. Amount of exemption available after the principal beneficiary's death--general 118.227. Amount of exemption available after the principal beneficiary's death--cost base and reduced cost base 118.230. Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts 118.240. What the following provisions are about 118.245. CGT events happening only to adjacent land 118.250. Compulsory acquisitions of adjacent land 118.255. Maximum exempt area 118.260. Partial exemption rules 118.265. Extension to adjacent structures Subdivision 118-D--Insurance and superannuation 118.300. Insurance policies 118.305. Superannuation 118.310. RSA's 118.313. Superannuation agreements under the Family Law Act 118.315. Segregated exempt assets of life insurance companies 118.320. Segregated current pension assets of a complying superannuation entity Subdivision 118-E--Units in pooled superannuation trusts 118.350. Units in pooled superannuation trusts Subdivision 118-F--Venture capital investment 118.400. What this Subdivision is about 118.405. Exemption for certain foreign venture capital investments through venture capital limited partnerships 118.407. Exemption for certain venture capital investments through early stage venture capital limited partnerships 118.410. Exemption for certain foreign venture capital investments through Australian venture capital funds of funds 118.415. Exemption for certain venture capital investments by foreign residents 118.420. Meaning of eligible venture capital partner etc. 118.425. Meaning of eligible venture capital investment--investments in companies 118.427. Meaning of eligible venture capital investment--investments in unit trusts 118.428. Additional investment requirements for ESVCLPs 118.430. Meaning of at risk 118.435. Special rule relating to investment in foreign resident holding companies 118.440. Meaning of permitted entity value 118.445. Meaning of committed capital Subdivision 118-G--Venture capital 118.500. What this Subdivision is about 118.505. Exemption for certain foreign venture capital 118.510. Meaning of resident investment vehicle 118.515. Meaning of venture capital entity 118.520. Meaning of superannuation fund for foreign residents 118.525. Meaning of venture capital equity Subdivision 118-H--Demutualisation of Tower Corporation 118.550. Demutualisation of Tower Corporation Division 121--Record keeping 121.10. What this Division is about 121.20. What records you must keep 121.25. How long you must retain the records 121.30. Exceptions 121.35. Asset register entries PART 3-3--CAPITAL GAINS AND LOSSES: SPECIAL TOPICS Division 122--Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company 122.1. What this Division is about Subdivision 122-A--Disposal or creation of assets by an individual or trustee to a wholly-owned company 122.5. What this Subdivision is about 122.15. Disposal or creation of assets--wholly-owned company 122.20. What you receive for the trigger event 122.25. Other requirements to be satisfied 122.35. What if the company undertakes to discharge a liability (disposal case) 122.37. Rules for working out what a liability in respect of an asset is 122.40. Disposal of a CGT asset 122.45. Disposal of all the assets of a business 122.50. All assets acquired on or after 20 September 1985 122.55. All assets acquired before 20 September 1985 122.60. Assets acquired before and after 20 September 1985 122.65. Creation of asset 122.70. Consequences for the company (disposal case) 122.75. Consequences for the company (creation case) Subdivision 122-B--Disposal or creation of assets by partners to a wholly-owned company 122.120. What this Subdivision is about 122.125. Disposal or creation of assets--wholly-owned company 122.130. What the partners receive for the trigger event 122.135. Other requirements to be satisfied 122.140. What if the company undertakes to discharge a liability (disposal case) 122.145. Rules for working out what a liability in respect of an interest in an asset is 122.150. Capital gain or loss disregarded 122.155. Disposal of post-CGT or pre-CGT interests 122.160. Disposal of both post-CGT and pre-CGT interests 122.170. Capital gain or loss disregarded 122.175. Other consequences 122.180. All interests acquired on or after 20 September 1985 122.185. All interests acquired before 20 September 1985 122.190. Interests acquired before and after 20 September 1985 122.195. Creation of asset 122.200. Consequences for the company (disposal case) 122.205. Consequences for the company (creation case) Division 124--Replacement-asset roll-overs 124.1. What this Division is about 124.5. How to find your way around this Division Subdivision 124-A--General rules 124.10. Your ownership of one CGT asset ends 124.15. Your ownership of more than one CGT asset ends Subdivision 124-B--Asset compulsorily acquired, lost or destroyed 124.70. Events giving rise to a roll-over 124.75. Other requirements if you receive money 124.80. Other requirements if you receive an asset 124.85. Consequences for receiving money 124.90. Consequences for receiving an asset 124.95. You receive both money and an asset Subdivision 124-C--Statutory licences 124.140. New statutory licences 124.145. Rollover consequences--capital gain or loss disregarded 124.150. Rollover consequences--partial roll-over 124.155. Roll-over consequences--all original licences were post-CGT 124.160. Roll-over consequences--all original licences were pre-CGT 124.165. Roll-over consequences--some original licences were pre-CGT, others were post-CGT Subdivision 124-D--Strata title conversion 124.190. Strata title conversion Subdivision 124-E--Exchange of shares or units 124.240. Exchange of shares in the same company 124.245. Exchange of units in the same unit trust Subdivision 124-F--Exchange of rights or options 124.295. Exchange of rights or option to acquire shares in a company 124.300. Exchange of rights or option to acquire units in a unit trust Subdivision 124-G--Exchange of shares in one company for shares in another company 124.350. What this Subdivision is about 124.355. Summary of rules 124.360. Disposal of shares in one company for shares in another one 124.365. Other requirements to be satisfied 124.370. Redemption or cancellation of shares in one company for shares in another one 124.375. Other requirements to be satisfied 124.380. Requirements to be satisfied in both cases 124.382. Special rules for ADI restructures 124.385. Consequences for the interposed company 124.390. Deferral of profit or loss on shares Subdivision 124-H--Exchange of units in a unit trust for shares in a company 124.435. What this Subdivision is about 124.440. Summary of rules 124.445. Disposal of units in a unit trust for shares in a company 124.450. Other requirements to be satisfied 124.455. Redemption or cancellation of units in a unit trust for shares in a company 124.460. Other requirements to be satisfied 124.465. Requirements to be satisfied in both cases 124.470. Consequences for the company Subdivision 124-I--Conversion of a body to an incorporated company 124.520. Conversion of a body to an incorporated company Subdivision 124-J--Crown leases 124.570. What this Subdivision is about 124.575. Extension or renewal of Crown lease 124.580. Meaning of Crown lease 124.585. Original right differs in area from new right 124.590. Part of original right excised 124.595. Treating parts of new right as separate assets 124.600. What is the roll-over? 124.605. Change of lessor Subdivision 124-K--Depreciating assets 124.655. Roll-over for depreciating assets 124.660. Right granted to associate Subdivision 124-L--Prospecting and mining entitlements 124.700. What this Subdivision is about 124.705. Extension or renewal of prospecting or mining entitlement 124.710. Meaning of prospecting entitlement and mining entitlement 124.715. Original entitlement differs in area from new entitlement 124.720. Part of original entitlement excised 124.725. Treating parts of new entitlement as separate assets 124.730. What is the roll-over? Subdivision 124-M--Scrip for scrip roll-over 124.775. What this Subdivision is about 124.780. Replacement of shares 124.781. Replacement of trust interests 124.782. Transfer or allocation of cost base of shares acquired by acquiring entity etc. 124.783. Meaning of significant stakeholder, common stakeholder, significant stake and common stake 124.784. Cost base of equity or debt given by acquiring entity to ultimate holding company 124.784A. When arrangement is a restructure 124.784B. What is the cost base and reduced cost base when arrangement is a restructure? 124.784C. Cost base of equity or debt given by acquiring entity to ultimate holding company 124.785. What is the roll-over? 124.790. Partial roll-over 124.795. Exceptions 124.800. Interest received for pre-CGT interest 124.810. Certain companies and trusts not regarded as having 300 members or beneficiaries Subdivision 124-N--Disposal of assets by a trust to a company 124.850. What this Subdivision is about 124.855. What this Subdivision deals with 124.860. Requirements for roll-over 124.865. Entities both choose the roll-over 124.870. Roll-over for owner of units or interests in a trust 124.875. Effect on the transferor and transferee Subdivision 124-O--FSR 124.880. Old licence roll-over (same owner) 124.885. Qualified licence roll-over (same owner) 124.890. Rights roll-over (same owner) 124.895. Consequences of a same owner roll-over 124.900. Old licence roll-over (new owner) 124.905. Qualified licence roll-over (new owner) 124.910. Rights roll-over (new owner) 124.915. Consequences of a new owner roll-over (where one CGT asset comes to an end) 124.920. Consequences of a new owner roll-over (where more than one CGT asset comes to an end) 124.925. Special extension of the 10 March 2004 cut-off date (same owner roll-overs) 124.930. Special extension of the 10 March 2004 cut-off date (new owner roll-overs) Subdivision 124-P--Exchange of a membership interest in an MDO for a membership interest in another MDO 124.975. What this Subdivision is about 124.980. Exchange of membership interests in an MDO 124.985. What the roll-over is for post-CGT interests 124.990. Partial roll-over 124.995. Pre-CGT interests Subdivision 124-Q--Exchange of stapled ownership interests for ownership interests in a unit trust 124.1040. What this Subdivision is about 124.1045. Exchange of stapled securities 124.1050. Conditions 124.1055. Consequences of the roll-over for exchanging members 124.1060. Consequences of the roll-over for interposed trust 124.1065. Certain foreign holders disregarded Subdivision 124-R--Water entitlements 124.1100. What this Subdivision is about 124.1105. Replacement water entitlements roll-over 124.1110. Roll-over consequences--capital gain or loss disregarded 124.1115. Roll-over consequences--partial roll-over 124.1120. Roll-over consequences--all original entitlements post-CGT 124.1125. Roll-over consequences--all original entitlements pre-CGT 124.1130. Roll-over consequences--some original entitlements pre-CGT, others post-CGT 124.1135. Reduction in water entitlements roll-over 124.1140. Roll-over consequences--capital gain or loss disregarded 124.1145. Roll-over consequences--all original entitlements post-CGT 124.1150. Roll-over consequences--some original entitlements pre-CGT, others post-CGT 124.1155. Roll-over for variation to CGT asset 124.1160. Roll-over consequences 124.1165. Roll-over consequences--partial roll-over Division 125--Demerger relief 125.1. What this Division is about Subdivision 125-A--Object of this Division 125.5. Object of this Division Subdivision 125-B--Consequences for owners of interests 125.50. Guide to Subdivision 125-B 125.55. When a roll-over is available for a demerger 125.60. Meaning of ownership interest and related terms 125.65. Meanings of demerger group, head entity and demerger subsidiary 125.70. Meanings of demerger, demerged entity and demerging entity 125.75. Exceptions to subsection 125-70(2) 125.80. What is the roll-over? 125.85. Cost base adjustments where CGT event happens but no roll-over chosen 125.90. Cost base adjustments where no CGT event 125.95. No other cost base adjustment after demerger 125.100. No further demerger relief in some cases Subdivision 125-C--Consequences for members of demerger group 125.150. Guide to Subdivision 125-C 125.155. Certain capital gains or losses disregarded for demerging entity 125.160. No CGT event J1 125.165. Adjusted capital loss for value shift under a demerger 125.170. Reduced cost base reduction if demerger asset subject to roll-over Subdivision 125-D--Corporate unit trusts and public trading trusts 125.225. Guide to Subdivision 125-D 125.230. Application of Division to corporate unit trusts and public trading trusts Division 126--Same-asset roll-overs 126.1. What this Division is about Subdivision 126-A--Marriage or relationship breakdowns 126.5. CGT event involving spouses 126.15. CGT event involving company or trustee 126.20. Subsequent CGT event happening to roll-over asset where transferor was a CFC or a non-resident trust 126.25. Conditions for the purposes of subsections 126-5(3A) and 126-15(5) Subdivision 126-B--Companies in the same wholly-owned group 126.40. What this Subdivision is about 126.45. Roll-over for members of wholly-owned group 126.50. Requirements for roll-over 126.55. When there is a roll-over 126.60. Consequences of roll-over 126.75. Originating company is a CFC 126.85. Effect of roll-over on certain liquidations Subdivision 126-C--Changes to trust deeds 126.125. What this Subdivision is about 126.130. Changes to trust deeds 126.135. Consequences of roll-over Subdivision 126-D--Small superannuation funds 126.140. CGT event involving small superannuation funds Subdivision 126-E----Entitlement to shares after demutualisation and scrip for scrip roll-over 126.185. What this Subdivision is about 126.190. When there is a roll-over 126.195. Consequences of roll-over Subdivision 126-F--Transfer of assets of superannuation funds to meet licensing requirements 126.200. What this Subdivision is about 126.205. Object of this Subdivision 126.210. When there is a roll-over and what its effects are Subdivision 126-G--Transfer of assets between certain trusts 126.215. What this Subdivision is about 126.220. Object of this Subdivision 126.225. When a roll-over may be chosen 126.230. Beneficiaries' entitlements not be discretionary etc. 126.235. Exceptions for roll-over 126.240. Consequences for the trusts 126.245. Consequences for beneficiaries--general approach for working out cost base etc. 126.250. Consequences for beneficiaries--other approach for working out cost base etc. 126.255. No other cost base etc. adjustment for beneficiaries 126.260. Giving information to beneficiaries Division 128--Effect of death 128.1. What this Division is about 128.10. Capital gain or loss when you die is disregarded 128.15. Effect on the legal personal representative or beneficiary 128.20. When does an asset pass to a beneficiary? 128.25. The beneficiary is a trustee of a superannuation fund etc. 128.50. Joint tenants Division 130--Investments 130.1. What this Division is about Subdivision 130-A--Bonus shares and units 130.15. Acquisition time and cost base of bonus equities 130.20. Issue of bonus shares or units Subdivision 130-B--Rights 130.40. Exercise of rights 130.45. Timing rules 130.50. Application to options Subdivision 130-C--Convertible interests 130.60. Shares or units acquired by converting a convertible interest Subdivision 130-D--Employee share schemes 130.75. Objects of Subdivision 130.80. ESS interests acquired under employee share schemes 130.85. Interests in employee share trusts 130.90. Shares held by employee share trusts 130.95. Shares and rights in relation to ESS interests 130.97. Application of certain provisions of Division 83A Subdivision 130-E--Exchangeable interests 130.100. Exchangeable interest 130.105. Shares acquired in exchange for the disposal or redemption of an exchangeable interest Division 132--Leases 132.1. Lessee incurs expenditure to get lease term varied or waived 132.5. Lessor pays lessee for improvements 132.10. Grant of a long-term lease 132.15. Lessee of land acquires reversionary interest of lessor Division 134--Options 134.1. Exercise of options Division 149--When an asset stops being a pre-CGT asset Subdivision 149-A--Key concepts 149.10. What is a pre-CGT asset? 149.15. Majority underlying interests in a CGT asset Subdivision 149-B--When asset of non-public entity stops being a pre-CGT asset 149.25. Which entities are affected 149.30. Effects if asset no longer has same majority underlying ownership 149.35. Cost base elements of asset that stops being a pre-CGT asset Subdivision 149-C--When asset of public entity stops being a pre-CGT asset 149.50. Which entities are affected 149.55. Entity to give the Commissioner evidence periodically as to whether asset still has same majority underlying ownership 149.60. What the evidence must show 149.70. Effects if asset no longer has same majority underlying ownership 149.75. Cost base elements of asset that stops being a pre-CGT asset 149.80. No more evidence needed after asset stops being a pre-CGT asset Subdivision 149-F--How to treat a 149.162. Subdivision applies only if entity gives sufficient evidence 149.165. Members treated as having underlying interests in assets until demutualisation 149.170. Effect of demutualisation of interposed company Division 152--Small business relief 152.1. What this Division is about Subdivision 152-A--Basic conditions for relief under this Division 152.5. What this Subdivision is about 152.10. Basic conditions for relief 152.12. Special conditions for CGT event D1 152.15. Maximum net asset value test 152.20. Meaning of net value of the CGT assets 152.35. Active asset test 152.40. Meaning of active asset 152.45. Continuing time periods for involuntary disposals 152.47. Spouses or children taken to be affiliates for certain passively held CGT assets 152.48. Working out an entity's aggregated turnover for passively held CGT assets 152.49. Businesses that are winding up 152.50. Significant individual test 152.55. Meaning of significant individual 152.60. Meaning of CGT concession stakeholder 152.65. Small business participation percentage 152.70. Direct small business participation percentage 152.75. Indirect small business participation percentage 152.78. Trustee of discretionary trust may nominate beneficiaries to be controllers of trust 152.80. CGT event happens to an asset or interest within 2 years of individual's death Subdivision 152-B--Small business 15-year exemption 152.100. What this Subdivision is about 152.105. 15-year exemption for individuals 152.110. 15-year exemption for companies and trusts 152.115. Continuing time periods for involuntary disposals 152.120. Discretionary trusts need not have a significant individual in a loss year or nil income year 152.125. Payments to company's or trust's CGT concession stakeholders are exempt Subdivision 152-C--Small business 50 152.200. What this Subdivision is about 152.205. You get the small business 50% reduction 152.210. You may also get the small business retirement exemption and small business roll-over relief 152.215. 15-year rule has priority 152.220. You may choose not to apply this Subdivision Subdivision 152-D--Small business retirement exemption 152.300. What this Subdivision is about 152.305. Choosing the exemption 152.310. Consequences of choice 152.315. Choosing the amount to disregard 152.320. Meaning of CGT retirement exemption limit 152.325. Company or trust conditions 152.330. 15-year rule has priority Subdivision 152-E--Small business roll-over 152.400. What this Subdivision is about 152.410. When you can obtain the roll-over 152.415. What the roll-over consists of 152.420. Rules where an individual who has obtained a roll-over dies 152.430. 15-year rule has priority PART 3-5--CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS Division 164--Non-share capital accounts for companies 164.1. What this Division is about 164.5. Object 164.10. Non-share capital account 164.15. Credits to non-share capital account 164.20. Debits to non-share capital account Division 165--Income tax consequences of changing ownership or control of a company 165.1. What this Division is about Subdivision 165-A--Deducting tax losses of earlier income years 165.5. What this Subdivision is about 165.10. To deduct a tax loss 165.12. Company must maintain the same owners 165.13. Alternatively, the company must satisfy the same business test 165.15. The same people must control the voting power, or the company must satisfy the same business test 165.20. When company can deduct part of a tax loss Subdivision 165-B--Working out the taxable income and tax loss for the income year of the change 165.23. What this Subdivision is about 165.25. Summary of this Subdivision 165.30. Flow chart showing the application of this Subdivision 165.35. On a change of ownership, unless the company satisfies the same business test 165.37. Who has more than a 50% stake in the company during a period 165.40. On a change of control of the voting power in the company, unless the company satisfies the same business test 165.45. First, divide the income year into periods 165.50. Next, calculate the notional loss or notional taxable income for each period 165.55. How to attribute deductions to periods 165.60. How to attribute assessable income to periods 165.65. How to calculate the company's taxable income for the income year 165.70. How to calculate the company's tax loss for the income year 165.75. How to calculate the company's notional loss or notional taxable income for a period when the company was a partner 165.80. How to calculate the company's share of a partnership's notional loss or notional net income for a period if both entities have the same income year 165.85. How to calculate the company's share of a partnership's notional loss or notional net income for a period if the entities have different income years 165.90. Company's full year deductions include a share of partnership's full year deductions Subdivision 165-CA--Applying net capital losses of earlier income years 165.93. What this Subdivision is about 165.96. When a company cannot apply a net capital loss Subdivision 165-CB--Working out the net capital gain and the net capital loss for the income year of the change 165.99. What this Subdivision is about 165.102. On a change of ownership, or of control of voting power, unless the company satisfies the same business test 165.105. First, divide the income year into periods 165.108. Next, calculate the notional net capital gain or notional net capital loss for each period 165.111. How to work out the company's net capital gain 165.114. How to work out the company's net capital loss Subdivision 165-CC--Change of ownership or control of company that has an unrealised net loss 165.115. What this Subdivision is about 165.115AA. Special rules to save compliance costs 165.115A. Application of Subdivision 165.115B. What happens when the company makes a capital loss or becomes entitled to a deduction in respect of a CGT asset after a changeover time 165.115BA. What happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock 165.115BB. Order of application of assets: residual unrealised net loss 165.115C. Changeover time--change in ownership of company 165.115D. Changeover time--change in control of company 165.115E. What is an unrealised net loss 165.115F. Notional gains and losses Subdivision 165-CD--Reductions after alterations in ownership or control of loss company 165.115GA. What this Subdivision is about 165.115GB. When adjustments must be made 165.115GC. How adjustments are calculated 165.115H. How this Subdivision applies 165.115J. Object of Subdivision 165.115K. Application and interpretation 165.115L. Alteration time--alteration in ownership of company 165.115M. Alteration time--alteration in control of company 165.115N. Alteration time--declaration by liquidator or administrator 165.115P. Notional alteration time--disposal of interests in company within 12 months before alteration time 165.115Q. Notional alteration time--disposal of interests in company earlier than 12 months before alteration time 165.115R. When company is a loss company at first or only alteration time in income year 165.115S. When company is a loss company at second or later alteration time in income year 165.115T. Reduction of certain amounts included in company's overall loss at alteration time 165.115U. Adjusted unrealised loss 165.115V. Notional losses 165.115W. Calculation of trading stock decrease 165.115X. Relevant equity interest 165.115Y. Relevant debt interest 165.115Z. What constitutes a controlling stake in a company 165.115ZA. Reductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time 165.115ZB. Adjustment amounts for the purposes of section 165-115ZA 165.115ZC. Notices to be given 165.115ZD. Adjustment (or further adjustment) for interest realised at a loss after global method has been used Subdivision 165-C--Deducting bad debts 165.117. What this Subdivision is about 165.119. Application of Subdivision 165.120. To deduct a bad debt 165.123. Company must maintain the same owners 165.126. Alternatively, the company must satisfy the same business test 165.129. Same people must control the voting power, or the company must satisfy the same business test 165.132. When tax losses resulting from bad debts cannot be deducted Subdivision 165-D--Tests for finding out whether the company has maintained the same owners 165.150. Who has more than 50% of the voting power in the company 165.155. Who has rights to more than 50% of the company's dividends 165.160. Who has rights to more than 50% of the company's capital distributions 165.165. Rules about tests for a condition or occurrence of a circumstance 165.175. Tests can be satisfied by a single person 165.180. Arrangements affecting beneficial ownership of shares 165.185. Shares treated as not having carried rights 165.190. Shares treated as always having carried rights 165.200. Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units 165.202. Shares held by government entities and charities etc. 165.203. Companies where no shares have been issued 165.205. Death of beneficial owner 165.207. Trustees of family trusts 165.208. Companies in liquidation etc. 165.209. Dual listed companies Subdivision 165-E--The same business test 165.210. The test 165.212D. Restructure of MDOs etc. 165.212E. Entry history rule does not apply for the purposes of the same business test Subdivision 165-F--Special provisions relating to ownership by non-fixed trusts 165.215. Special alternative to change of ownership test for Subdivision 165-A 165.220. Special alternative to change of ownership test for Subdivision 165-B 165.225. Special way of dividing the income year under Subdivision 165-B 165.230. Special alternative to change of ownership test for Subdivision 165-C 165.235. Information about non-fixed trusts with interests in company 165.240. Notices where requirements of section 165-235 are met 165.245. When an entity has a fixed entitlement to income or capital of a company Subdivision 165-G--Other special provisions 165.250. Control of companies in liquidation etc. 165.255. Incomplete periods Division 166--Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company 166.1. What this Division is about Subdivision 166-AA--The object of this Division 166.3. The object of this Division Subdivision 166-A--Deducting tax losses of earlier income years 166.5. How Subdivision 165-A applies to a widely held or eligible Division 166 company 166.15. Companies can choose that this Subdivision is not to apply to them Subdivision 166-B--Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change 166.20. How Subdivisions 165-B and 165-CB apply to a widely held or eligible Division 166 company 166.25. How to work out the taxable income, tax loss, net capital gain and net capital loss 166.35. Companies can choose that this Subdivision is not to apply to them Subdivision 166-C--Deducting bad debts 166.40. How Subdivision 165-C applies to a widely held or eligible Division 166 company 166.50. Companies can choose that this Subdivision is not to apply to them Subdivision 166-CA--Changeover times and alteration times 166.80. How Subdivision 165-CC or 165-CD applies to a widely held or eligible Division 166 company 166.90. Companies can choose that this Subdivision is not to apply to them Subdivision 166-D--Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners 166.135. What this Subdivision is about 166.145. The ownership tests: substantial continuity of ownership 166.165. Relationship with rules in Division 165 166.175. Corporate change in a company Subdivision 166-E--Concessional tracing rules 166.215. What this Subdivision is about 166.220. Application of this Subdivision 166.225. Direct stakes of less than 10% in the tested company 166.230. Indirect stakes of less than 10% in the tested company 166.235. Voting, dividend and capital stakes 166.240. Stakes held directly and/or indirectly by widely held companies 166.245. Stakes held by other entities 166.255. Bearer shares in foreign listed companies 166.260. Depository entities holding stakes in foreign listed companies 166.265. Persons who actually control voting power or have rights are taken not to control power or have rights 166.270. Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights 166.272. Same shares or interests to be held 166.275. Rules in this Subdivision intended to be concessional 166.280. Controlled test companies Division 170--Treatment of certain company groups for income tax purposes Subdivision 170-A--Transfer of tax losses within certain wholly-owned groups of companies 170.1. What this Subdivision is about 170.5. Basic principles for transferring tax losses 170.10. When a company can transfer a tax loss 170.15. Income company is taken to have incurred transferred loss 170.20. Who can deduct transferred loss 170.25. Tax treatment of consideration for transferred tax loss 170.30. Companies must be in existence and members of the same wholly-owned group etc. 170.32. Tax loss incurred by the loss company because of a transfer under Subdivision 707-A 170.33. Alternative test of relations between the loss company and other companies 170.35. The loss company 170.40. The income company 170.42. If the income company has become the head company of a consolidated group or MEC group 170.45. Maximum amount that can be transferred 170.50. Transfer by written agreement 170.55. Losses must be transferred in order they are incurred 170.60. Income company cannot transfer transferred tax loss 170.65. Agreement transfers as much as can be transferred 170.70. Amendment of assessments 170.75. Treatment like Australian branches of foreign banks Subdivision 170-B--Transfer of net capital losses within certain wholly-owned groups of companies 170.101. What this Subdivision is about 170.105. Basic principles for transferring a net capital loss 170.110. When a company can transfer a net capital loss 170.115. Who can apply transferred loss 170.120. Gain company is taken to have made transferred loss 170.125. Tax treatment of consideration for transferred tax loss 170.130. Companies must be in existence and members of the same wholly-owned group etc. 170.132. Net capital loss made by the loss company because of a transfer under Subdivision 707-A 170.133. Alternative test of relations between the loss company and other companies 170.135. The loss company 170.140. The gain company 170.142. If the gain company has become the head company of a consolidated group or MEC group 170.145. Maximum amount that can be transferred 170.150. Transfer by written agreement 170.155. Losses must be transferred in order they are made 170.160. Gain company cannot transfer transferred net capital loss 170.165. Agreement transfers as much as can be transferred 170.170. Amendment of assessments 170.174. Treatment like Australian branches of foreign banks Subdivision 170-C--Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly-owned groups of companies 170.201. What this Subdivision is about 170.205. Object of Subdivision 170.210. Transfer of tax loss: direct and indirect interests in the loss company 170.215. Transfer of tax loss: direct and indirect interests in the income company 170.220. Transfer of net capital loss: direct and indirect interests in the loss company 170.225. Transfer of net capital loss: direct and indirect interests in the gain company Subdivision 170-D--Transactions by a company that is a member of a linked group 170.250. What this Subdivision is about 170.255. Application of Subdivision 170.260. Linked group 170.265. Connected entity 170.270. Immediate consequences for originating company 170.275. Subsequent consequences for originating company 170.280. What happens if certain events happen in respect of the asset Division 175--Use of a company's tax losses or deductions to avoid income tax 175.1. What this Division is about Subdivision 175-A--Tax benefits from unused tax losses 175.5. When Commissioner can disallow deduction for tax loss 175.10. First case: income or capital gain injected into company because of available tax loss 175.15. Second case: someone else obtains a tax benefit because of tax loss available to company Subdivision 175-B--Tax benefits from unused deductions 175.20. Income or capital gain injected into company because of available deductions 175.25. Deduction injected into company because of available income or capital gain 175.30. Someone else obtains a tax benefit because of a deduction, income or capital gain available to company 175.35. Tax loss resulting from disallowed deductions Subdivision 175-CA--Tax benefits from unused net capital losses of earlier income years 175.40. When Commissioner can disallow net capital loss of earlier income year 175.45. First case: capital gain injected into company because of available net capital loss 175.50. Second case: someone else obtains a tax benefit because of net capital loss available to company Subdivision 175-CB--Tax benefits from unused capital losses of the current year 175.55. When Commissioner can disallow capital loss of current year 175.60. Capital gain injected into company because of available capital loss 175.65. Capital loss injected into company because of available capital gain 175.70. Someone else obtains a tax benefit because of capital loss or gain available to company 175.75. Net capital loss resulting from disallowed capital losses Subdivision 175-C--Tax benefits from unused bad debt deductions 175.80. When Commissioner can disallow deduction for bad debt 175.85. First case: income or capital gain injected into company because of available bad debt 175.90. Second case: someone else obtains a tax benefit because of bad debt deduction available to company Subdivision 175-D--Common rules 175.95. When a person has a shareholding interest in the company 175.100. Commissioner may disallow excluded losses etc. of insolvent companies Division 180--Information about family trusts with interests in companies 180.1. What this Division is about Subdivision 180-A--Information relevant to Division 165 180.5. Information about family trusts with interests in companies 180.10. Notice where requirements of section 180-5 are met Subdivision 180-B--Information relevant to Division 175 180.15. Information about family trusts with interests in companies 180.20. Notice where requirements of section 180-15 are met Division 195--Special types of company Subdivision 195-A--Pooled development funds 195.1. What this Subdivision is about 195.5. Deductibility of PDF tax losses 195.10. PDF cannot transfer tax loss 195.15. Tax loss for year in which company becomes a PDF 195.25. Applying a PDF's net capital losses 195.30. PDF cannot transfer net capital loss 195.35. Net capital loss for year in which company becomes a PDF Subdivision 195-B--Limited partnerships 195.60. What this Subdivision is about 195.65. Tax losses cannot be transferred to a VCLP, an ESVCLP, an AFOF or a VCMP 195.70. Previous tax losses can be deducted after ceasing to be a VCLP, an ESVCLP, an AFOF or a VCMP 195.75. Determinations to take account of income years of less than 12 months Division 197--Tainted share capital accounts 197.1. What this Division is about Subdivision 197-A--What transfers into a company's share capital account does this Division apply to 197.5. Division generally applies to an amount transferred to share capital account from another account 197.10. Exclusion for amounts that could be identified as share capital 197.15. Exclusion for amounts transferred under debt/equity swaps 197.20. Exclusion for amounts transferred leading to there being no shares with a par value--non-Corporations Act companies 197.25. Exclusion for transfers from option premium reserves 197.30. Exclusion for transfers made in connection with demutualisations of non-insurance etc. companies 197.35. Exclusion for transfers made in connection with demutualisations of insurance etc. companies 197.37. Exclusion for transfers made in connection with demutualisations of private health insurers 197.38. Exclusion for transfers connected with demutualisations of friendly society health or life insurers 197.40. Exclusion for post-demutualisation transfers relating to life insurance companies Subdivision 197-B--Consequence of transfer 197.45. A franking debit arises in relation to the transfer Subdivision 197-C--Consequence of transfer 197.50. The share capital account becomes tainted (if it is not already tainted) 197.55. Choosing to untaint a tainted share capital account 197.60. Choosing to untaint--liability to untainting tax 197.65. Choosing to untaint--further franking debits may arise 197.70. Due date for payment of untainting tax 197.75. General interest charge for late payment of untainting tax 197.80. Notice of liability to pay untainting tax 197.85. Evidentiary effect of notice of liability to pay untainting tax PART 3-6--THE IMPUTATION SYSTEM Division 200--Guide to Part 3-6 200.1. What this Division is about 200.5. The imputation system 200.10. Franking a distribution 200.15. The franking account 200.20. How a distribution is franked 200.25. A corporate tax entity must not give its members credit for more tax than the entity has paid 200.30. Benchmark rule 200.35. Effect of receiving a franked distribution 200.40. An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members 200.45. Special rules for franking by some entities Division 201--Objects and application of Part 3-6 201.1. Objects 201.5. Application of this Part Division 202--Franking a distribution Subdivision 202-A--Franking a distribution 202.1. What this Subdivision is about 202.5. Franking a distribution Subdivision 202-B--Who can frank a distribution 202.10. What this Subdivision is about 202.15. Franking entities 202.20. Residency requirement when making a distribution Subdivision 202-C--Which distributions can be franked 202.25. What this Subdivision is about 202.30. Frankable distributions 202.35. Object 202.40. Frankable distributions 202.45. Unfrankable distributions 202.47. Distributions of certain ADI profits following restructure Subdivision 202-D--Amount of the franking credit on a distribution 202.50. What this Subdivision is about 202.55. What is the maximum franking credit for a frankable distribution? 202.60. Amount of the franking credit on a distribution 202.65. Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution Subdivision 202-E--Distribution statements 202.70. What this Subdivision is about 202.75. Obligation to give a distribution statement 202.80. Distribution statement 202.85. Changing the franking credit on a distribution by amending the distribution statement Division 203--Benchmark rule 203.1. What this Division is about 203.5. Benchmark rule 203.10. Benchmark franking percentage 203.15. Object 203.20. Application of the benchmark rule 203.25. Benchmark rule 203.30. Setting a benchmark franking percentage 203.35. Franking percentage 203.40. Franking periods--where the entity is not a private company 203.45. Franking period--private companies 203.50. Consequences of breaching the benchmark rule 203.55. Commissioner's powers to permit a departure from the benchmark rule Division 204--Anti-streaming rules Subdivision 204-A--Objects and application 204.1. Objects 204.5. Application Subdivision 204-B--Linked distributions 204.10. What this Subdivision is about 204.15. Linked distributions Subdivision 204-C--Substituting tax-exempt bonus share for franked distributions 204.20. What this Subdivision is about 204.25. Substituting tax-exempt bonus shares for franked distributions Subdivision 204-D--Streaming distributions 204.26. What this Subdivision is about 204.30. Streaming distributions 204.35. When does a franking debit arise if the Commissioner makes a determination under paragraph 204-30(3)(a) 204.40. Amount of the franking debit 204.41. Amount of the exempting debit 204.45. Effect of a determination about distributions to favoured members 204.50. Assessment and notice of determination 204.55. Right to review where a determination made Subdivision 204-E--Disclosure requirements 204.65. What this Subdivision is about 204.70. Application of this Subdivision 204.75. Notice to the Commissioner 204.80. Commissioner may require information where the Commissioner suspects streaming Division 205--Franking accounts, franking deficit tax liabilities and the related tax offset 205.1. What this Division is about 205.5. Franking accounts, franking deficit tax liabilities and the related tax offset 205.10. Each entity that is or has been a corporate tax entity has a franking account 205.15. Franking credits 205.20. Paying a PAYG instalment or income tax 205.25. Residency requirement for an event giving rise to a franking credit or franking debit 205.30. Franking debits 205.35. Refund of income tax 205.40. Franking surplus and deficit 205.45. Franking deficit tax 205.50. Deferring franking deficit 205.70. Tax offset arising from franking deficit tax liabilities Division 207--Effect of receiving a franked distribution 207.5. Overview Subdivision 207-A--Effect of receiving a franked distribution generally 207.10. What this Subdivision is about 207.15. Applying the general rule 207.20. General rule--gross-up and tax offset Subdivision 207-B--Franked distribution received through certain partnerships and trustees 207.25. What this Subdivision is about 207.30. Applying this Subdivision 207.35. Gross-up--distribution made to, or flows indirectly through, a partnership or trustee 207.37. Attributable franked distribution--trusts 207.45. Tax offset--distribution flows indirectly to an entity 207.50. When a franked distribution flows indirectly to or through an entity 207.55. Share of a franked distribution 207.57. Share of the franking credit on a franked distribution 207.58. Specifically entitled to an amount of a franked distribution 207.59. Franked distributions within class treated as single franked distribution Subdivision 207-C--Residency requirements for the general rule 207.60. What this Subdivision is about 207.65. Satisfying the residency requirement 207.70. Gross-up and tax offset under section 207-20 207.75. Residency requirement Subdivision 207-D--No gross-up or tax offset where distribution would not be taxed 207.80. What this Subdivision is about 207.85. Applying this Subdivision 207.90. Distribution that is made to an entity 207.95. Distribution that flows indirectly to an entity Subdivision 207-E--Exceptions to the rules in Subdivision 207-D 207.105. What this Subdivision is about Subdivision 207-D--does not apply to certain exempt institutions, trusts and life insurance companies as set out in this Subdivision. Such an entity may be entitled to a tax offset under this Subdivision in relation to a franked distribution. 207.110. Effect of non-assessable income on gross up and tax offset 207.115. Which exempt institutions are eligible for a refund? 207.117. Residency requirement 207.119. Entity not treated as exempt institution eligible for refund in certain circumstances 207.120. Entity may be ineligible because of a distribution event 207.122. Entity may be ineligible if distribution is in the form of property other than money 207.124. Entity may be ineligible if other money or property also acquired 207.126. Entity may be ineligible if distributions do not match trust share amounts 207.128. Reinvestment choice 207.130. Controller's liability 207.132. Treatment of benefits provided by an entity to a controller 207.134. Entity's present entitlement disregarded in certain circumstances 207.136. Review of certain decisions Subdivision 207-F--No gross-up or tax offset where the imputation system has been manipulated 207.140. What this Subdivision is about 207.145. Distribution that is made to an entity 207.150. Distribution that flows indirectly to an entity 207.155. When is a distribution made as part of a dividend stripping operation? 207.160. Distribution that is treated as an interest payment Division 208--Exempting entities and former exempting entities 208.5. What is an exempting entity? 208.10. Former exempting entities 208.15. Distributions by exempting entities and former exempting entities Subdivision 208-A--What are exempting entities and former exempting entities 208.20. Exempting entities 208.25. Effective ownership of entity by prescribed persons 208.30. Accountable membership interests 208.35. Accountable partial interests 208.40. Prescribed persons 208.45. Persons who are taken to be prescribed persons 208.50. Former exempting companies Subdivision 208-B--Franking with an exempting credit 208.55. What this Subdivision is about 208.60. Franking with an exempting credit Subdivision 208-C--Amount of the exempting credit on a distribution 208.65. What this Subdivision is about 208.70. Amount of the exempting credit on a distribution Subdivision 208-D--Distribution statements 208.75. Guide to Subdivision 208-D 208.80. Additional information to be included by a former exempting entity or exempting entity Subdivision 208-E--Distributions to be franked with exempting credits to the same extent 208.85. What this Subdivision is about 208.90. All frankable distributions made within a franking period must be franked to the same extent with an exempting credit 208.95. Exempting percentage 208.100. Consequences of breaching the rule in section 208-90 Subdivision 208-F--Exempting accounts and franking accounts of exempting entities and former exempting entities 208.105. What this Subdivision is about 208.110. Exempting account 208.115. Exempting credits 208.120. Exempting debits 208.125. Exempting surplus and deficit 208.130. Franking credits arising because of status as exempting entity or former exempting entity 208.135. Relationships that will give rise to a franking credit under item 5 of the table in section 208-130 208.140. Membership of the same effectively wholly-owned group 208.145. Franking debits arising because of status as exempting entity or former exempting entity 208.150. Residency requirement 208.155. Eligible continuing substantial member 208.160. Distributions that are affected by a manipulation of the imputation system 208.165. Amount of the exempting credit or franking credit arising because of a distribution franked with an exempting credit 208.170. Where a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 affects part of the distribution 208.175. When does a distribution franked with an exempting credit flow indirectly to an entity? 208.180. What is an entity's share of the exempting credit on a distribution? 208.185. Minister may convert exempting surplus to franking credit of former exempting entity previously owned by the Commonwealth Subdivision 208-G--Tax effects of distributions by exempting entities 208.190. What this Subdivision is about 208.195. Division 207 does not generally apply 208.200. Distributions to exempting entities 208.205. Distributions to employees acquiring shares under eligible employee share schemes 208.215. Eligible employee share schemes Subdivision 208-H--Tax effect of a distribution franked with an exempting credit 208.220. What this Subdivision is about 208.225. Division 207 does not generally apply 208.230. Distributions to exempting entities and former exempting entities 208.235. Distributions to employees acquiring shares under eligible employee share schemes 208.240. Distributions to certain individuals Division 210--Venture capital franking 210.1. Purpose of venture capital franking 210.5. How is this achieved? 210.10. What is a venture capital credit? 210.15. What does the PDF have to do to distribute the credits? 210.20. Limits on venture capital franking Subdivision 210-A--Franking a distribution with a venture capital credit 210.25. What this Subdivision is about 210.30. Franking a distribution with a venture capital credit Subdivision 210-B--Participating PDFs 210.35. What this Subdivision is about 210.40. What is a participating PDF Subdivision 210-C--Distributions that are frankable with a venture capital credit 210.45. What this Subdivision is about 210.50. Which distributions can be franked with a venture capital credit? Subdivision 210-D--Amount of the venture capital credit on a distribution 210.55. What this Subdivision is about 210.60. Amount of the venture capital credit on a distribution Subdivision 210-E--Distribution statements 210.65. What this Subdivision is about 210.70. Additional information to be included when a distribution is franked with a venture capital credit Subdivision 210-F--Rules affecting the allocation of venture capital credits 210.75. What this Subdivision is about 210.80. Draining the venture capital surplus when a distribution frankable with venture capital credits is made 210.81. Distributions to be franked with venture capital credits to the same extent 210.82. Consequences of breaching the rule in section 210-81 Subdivision 210-G--Venture capital sub-account 210.85. What this Subdivision is about 210.90. The venture capital sub-account 210.95. Venture capital deficit tax 210.100. Venture capital sub-account 210.105. Venture capital credits 210.110. Determining the extent to which a franking credit is reasonably attributable to a particular payment of tax 210.115. Participating PDF may elect to have venture capital credits arise on its assessment day 210.120. Venture capital debits 210.125. Venture capital debit where CGT limit is exceeded 210.130. Venture capital surplus and deficit 210.135. Venture capital deficit tax 210.140. Effect of a liability to pay venture capital deficit tax on franking deficit tax 210.145. Effect of a liability to pay venture capital deficit tax on the franking account 210.150. Deferring venture capital deficit Subdivision 210-H--Effect of receiving a distribution franked with a venture capital credit 210.155. What this Subdivision is about 210.160. The significance of a venture capital credit 210.165. Recipients for whom the venture capital credit is not significant 210.170. Tax offset for certain recipients of distributions franked with venture capital credits 210.175. Amount of the tax offset 210.180. Application of Division 207 where the recipient is entitled to a tax offset under section 210-170 Division 214--Administering the imputation system 214.1. Purpose of the system 214.5. Key features Subdivision 214-A--Franking returns 214.10. What this Subdivision is about 214.15. Notice to give a franking return--general notice 214.20. Notice to a specific corporate tax entity 214.25. Content and form of a franking return 214.30. Franking account balance 214.35. Venture capital sub-account balance 214.40. Meaning of franking tax 214.45. Effect of a refund on franking returns 214.50. Evidence Subdivision 214-B--Franking assessments 214.55. What this Subdivision is about 214.60. Commissioner may make a franking assessment 214.65. Commissioner taken to have made a franking assessment on first return 214.70. Part-year assessment 214.75. Validity of assessment 214.80. Objections 214.85. Evidence Subdivision 214-C--Amending franking assessments 214.90. What this Subdivision is about 214.95. Amendments within 3 years of the original assessment 214.100. Amended assessments are treated as franking assessments 214.105. Further return as a result of a refund affecting a franking deficit tax liability 214.110. Later amendments--on request 214.115. Later amendments--failure to make proper disclosure 214.120. Later amendments--fraud or evasion 214.125. Further amendment of an amended particular 214.135. Amendment on review etc. 214.140. Notice of amendments Subdivision 214-D--Collection and recovery 214.145. What this Subdivision is about 214.150. Due date for payment of franking tax 214.155. General interest charge 214.160. Refunds of amounts overpaid Subdivision 214-E--Records, information and tax agents 214.170. What this Subdivision is about 214.175. Record keeping 214.180. Power of Commissioner to obtain information Division 215--Consequences of the debt Subdivision 215-A--Application of the imputation system to non-share equity interests 215.1. Application of the imputation system to non-share equity interests Subdivision 215-B--Non-share dividends that are unfrankable to some extent 215.5. What this Subdivision is about 215.10. Certain non-share dividends by ADIs unfrankable 215.15. Non-share dividends are unfrankable if profits are unavailable 215.20. Working out the available frankable profits 215.25. Anticipating available frankable profits Division 216--Cum dividend sales and securities lending arrangements Subdivision 216-A--Circumstances where a distribution to a member of a corporate tax entity is treated as having been made to someone else 216.1. When a distribution made to a member of a corporate tax entity is treated as having been made to someone else 216.5. First situation (cum dividend sales) 216.10. Second situation (securities lending arrangements) 216.15. Distribution closing time Subdivision 216-B--Statements to be made where there is a cum dividend sale or securities lending arrangement 216.20. Cum dividend sale--statement by securities dealer 216.25. Cum dividend sale--statement by party 216.30. Securities lending arrangements--statement by borrower Division 218--Application of imputation rules to co-operative companies 218.5. Application of imputation rules to co-operative companies Division 219--Imputation for life insurance companies 219.1. What this Division is about Subdivision 219-A--Application of imputation rules to life insurance companies 219.10. Application of imputation rules to life insurance companies Subdivision 219-B--Franking accounts of life insurance companies 219.15. Franking credits 219.30. Franking debits 219.40. Residency requirement 219.45. Assessment day 219.50. Amount attributable to shareholders' share of income tax liability 219.55. Adjustment resulting from an amended assessment 219.70. Tax offset under section 205-70 219.75. Working out franking credits and franking debits where a tax offset under section 205-70 is applied Division 220--Imputation for NZ resident companies and related companies 220.1. What this Division is about Subdivision 220-A--Objects of this Division 220.15. Objects 220.20. What is an NZ resident? Subdivision 220-B--NZ company treated as Australian resident for imputation system if company chooses 220.25. Application of provisions of Part 3-6 outside this Division 220.30. What is an NZ franking company? 220.35. Making an NZ franking choice 220.40. When is an NZ franking choice in force? 220.45. Revoking an NZ franking choice 220.50. Cancelling an NZ franking choice Subdivision 220-C--Modifications of other Divisions of this Part 220.100. Residency requirement for franking 220.105. Unfrankable distributions by NZ franking companies 220.110. Maximum franking credit under section 202-60 220.205. Franking credit for payment of NZ franking company's withholding tax liability 220.210. Effect of franked distribution to NZ franking company or flowing indirectly to NZ franking company 220.215. Effect on franking account if NZ franking choice ceases to be in force 220.300. NZ franking company's franking account affected by franking accounts of some of its 100% subsidiaries 220.350. Providing for a franking credit to arise 220.400. Gross-up and tax offset for distribution from NZ franking company reduced by supplementary dividend 220.405. Franked distribution and supplementary dividend flowing indirectly 220.410. Franking credit reduced if tax offset reduced 220.500. Publicly listed post-choice NZ franking company and its 100% subsidiaries are not exempting entities 220.505. Post-choice NZ franking company is not automatically prescribed person 220.510. Parent company's status as prescribed person sets status of all other members of same wholly-owned group 220.605. Effect on exempting account if NZ franking choice ceases to be in force 220.700. Tax effect of distribution franked by NZ franking company with an exempting credit 220.800. Joint and several liability for NZ resident company's franking tax etc. PART 3-10----FINANCIAL TRANSACTIONS Division 230--Taxation of financial arrangements 230.1. What this Division is about 230.5. Scope of this Division Subdivision 230-A--Core rules 230.10. Objects of this Division 230.15. Gains are assessable and losses deductible 230.20. Gain or loss to be taken into account only once under this Act 230.25. Associated financial benefits to be taken into account only once under this Act 230.30. Treatment of gains and losses related to exempt income and non-assessable non-exempt income 230.35. Treatment of gains and losses of private or domestic nature 230.40. Methods for taking gain or loss into account 230.45. Financial arrangement 230.50. Financial arrangement (equity interest or right or obligation in relation to equity interest) 230.55. Rights, obligations and arrangements (grouping and disaggregation rules) 230.60. When financial benefit provided or received under financial arrangement 230.65. Amount of financial benefit relating to more than one financial arrangement etc. 230.70. Apportionment when financial benefit received or right ceases 230.75. Apportionment when financial benefit provided or obligation ceases 230.80. Consistency in working out gains or losses (integrity measure) 230.85. Rights and obligations include contingent rights and obligations Subdivision 230-B--The accruals 230.90. What this Subdivision is about 230.95. Objects of this Subdivision 230.100. When accruals method or realisation method applies 230.105. Sufficiently certain overall gain or loss 230.110. Sufficiently certain gain or loss from particular event 230.115. Sufficiently certain financial benefits 230.120. Financial arrangements with notional principal 230.125. Overview of the accruals method 230.130. Applying accruals method to work out period over which gain or loss is to be spread 230.135. How gain or loss is spread 230.140. Method of spreading gain or loss--effective interest method 230.145. Application of effective interest method where differing income and accounting years 230.150. Election for portfolio treatment of fees 230.155. Election for portfolio treatment of fees where differing income and accounting years 230.160. Portfolio treatment of fees 230.165. Portfolio treatment of premiums and discounts for acquiring portfolio 230.170. Allocating gain or loss to income years 230.175. Running balancing adjustments 230.180. Realisation method 230.185. Reassessment 230.190. Re-estimation 230.195. Balancing adjustment if rate of return maintained on re-estimation 230.200. Re-estimation if balancing adjustment on partial disposal Subdivision 230-C--Fair value method 230.205. Objects of this Subdivision 230.210. Fair value election 230.215. Fair value election where differing income and accounting years 230.220. Financial arrangements to which fair value election applies 230.225. Financial arrangements to which election does not apply 230.230. Applying fair value method to gains and losses 230.235. Splitting financial arrangements into 2 financial arrangements 230.240. When election ceases to apply 230.245. Balancing adjustment if election ceases to apply Subdivision 230-D--Foreign exchange retranslation method 230.250. Objects of this Subdivision 230.255. Foreign exchange retranslation election 230.260. Foreign exchange retranslation election where differing income and accounting years 230.265. Financial arrangements to which general election applies 230.270. Financial arrangements to which general election does not apply 230.275. Balancing adjustment for election in relation to qualifying forex accounts 230.280. Applying foreign exchange retranslation method to gains and losses 230.285. When election ceases to apply 230.290. Balancing adjustment if election ceases to apply Subdivision 230-E--Hedging financial arrangements method 230.295. Objects of this Subdivision 230.300. Applying hedging financial arrangement method to gains and losses 230.305. Table of events and allocation rules 230.310. Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item 230.315. Hedging financial arrangement election 230.320. Hedging financial arrangement election where differing income and accounting years 230.325. Hedging financial arrangements to which election applies 230.330. Hedging financial arrangements to which election does not apply 230.335. Hedging financial arrangement and hedged item 230.340. Generally whole arrangement must be hedging financial arrangement 230.345. Requirements not satisfied because of honest mistake or inadvertence 230.350. Derivative financial arrangement and foreign currency hedge 230.355. Recording requirements 230.360. Determining basis for allocating gain or loss 230.365. Effectiveness of the hedge 230.370. When election ceases to apply 230.375. Balancing adjustment if election ceases to apply 230.380. Where requirements not met 230.385. You may be excluded from this Subdivision for deliberate failures to comply with requirements Subdivision 230-F--Reliance on financial reports 230.390. Objects of this Subdivision 230.395. Election to rely on financial reports 230.400. Financial reports election where differing income and accounting years 230.405. Commissioner discretion to waive requirements in paragraphs 230-395(2)(c) and (e) 230.410. Financial arrangements to which the election applies 230.415. Financial arrangements not covered by election 230.420. Effect of election to rely on financial reports 230.425. When election ceases to apply 230.430. Balancing adjustment if election ceases to apply Subdivision 230-G--Balancing adjustment on ceasing to have a financial arrangement 230.435. When balancing adjustment made 230.440. Exceptions 230.445. Balancing adjustment Subdivision 230-H--Exceptions 230.450. Short-term arrangements where non-money amount involved 230.455. Certain taxpayers where no significant deferral 230.460. Various rights and/or obligations 230.465. Ceasing to have a financial arrangement in certain circumstances 230.470. Forgiveness of commercial debts 230.475. Clarifying exceptions 230.480. Treatment of gains in form of franked distribution etc. Subdivision 230-I--Other provisions 230.485. Effect of change of residence--rules for particular methods 230.490. Effect of change of residence--disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement 230.495. Effect of change of accounting principles or standards 230.500. Comparable foreign accounting and auditing standards 230.505. Financial arrangement as consideration for provision or acquisition of a thing 230.510. Non-arm's length dealings in relation to financial arrangement 230.515. Arm's length dealings in relation to financial arrangement--adjustment to gain or loss in certain situations 230.520. Disregard gains or losses covered by value shifting regime 230.525. Consolidated financial reports Subdivision 230-J--Additional operation of Division 230.530. Additional operation of Division Division 240--Arrangements treated as a sale and loan 240.1. What this Division is about 240.3. How the recharacterisation affects the notional seller 240.7. How the recharacterisation affects the notional buyer Subdivision 240-A--Application and scope of Division 240.10. Application of this Division 240.15. Scope of Division Subdivision 240-B--The notional sale and notional loan 240.17. Who is the notional seller and the notional buyer? 240.20. Notional sale of property by notional seller and notional acquisition of property by notional buyer 240.25. Notional loan by notional seller to notional buyer Subdivision 240-C--Amounts to be included in notional seller's assessable income 240.30. What this Subdivision is about 240.35. Amounts to be included in notional seller's assessable income 240.40. Arrangement payments not to be included in notional seller's assessable income Subdivision 240-D--Deductions allowable to notional buyer 240.45. What this Subdivision is about 240.50. Extent to which deductions are allowable to notional buyer 240.55. Arrangement payments not to be deductions Subdivision 240-E--Notional interest and arrangement payments 240.60. Notional interest 240.65. Arrangement payments 240.70. Arrangement payment periods Subdivision 240-F--The end of the arrangement 240.75. When is the end of the arrangement? 240.80. What happens if the arrangement is extended or renewed 240.85. What happens if an amount is paid by or on behalf of the notional buyer to acquire the property 240.90. What happens if the notional buyer ceases to have the right to use the property Subdivision 240-G--Adjustments if total amount assessed to notional seller differs from amount of interest 240.100. What this Subdivision is about 240.105. Adjustments for notional seller 240.110. Adjustments for notional buyer Subdivision 240-H--Application of Division 16E to certain arrangements 240.112. Division 16E applies to certain arrangements Subdivision 240-I--Provisions applying to hire purchase agreements 240.115. Another person, or no person taken to own property in certain cases Division 242--Leases of luxury cars 242.1. What this Division is about Subdivision 242-A--Notional sale and loan 242.5. What this Subdivision is about 242.10. Application 242.15. Notional sale and acquisition 242.20. Consideration for notional sale, and cost, of car 242.25. Notional loan by lessor to lessee Subdivision 242-B--Amount to be included in lessor's assessable income 242.30. What this Subdivision is about 242.35. Amount to be included in lessor's assessable income 242.40. Treatment of lease payments Subdivision 242-C--Deductions allowable to lessee 242.45. What this Subdivision is about 242.50. Extent to which deductions are allowable to lessee 242.55. Lease payments not deductible Subdivision 242-D--Adjustments if total amount assessed to lessor differs from amount of interest 242.60. What this Subdivision is about 242.65. Adjustments for lessor 242.70. Adjustments for lessee Subdivision 242-E--Extension, renewal and final ending of the lease 242.75. What this Subdivision is about 242.80. What happens if the term of the lease is extended or the lease is renewed 242.85. What happens if an amount is paid by the lessee to acquire the car 242.90. What happens if the lessee stops having the right to use the car Division 243--Limited recourse debt 243.10. What this Division is about Subdivision 243-A--Circumstances in which Division operates 243.15. When does this Division apply? 243.20. What is limited recourse debt? 243.25. When is a debt arrangement terminated? 243.30. What is the financed property and the debt property? Subdivision 243-B--Working out the excessive deductions 243.35. Working out the excessive deductions Subdivision 243-C--Amounts included in assessable income and deductions 243.40. Amount included in debtor's assessable income 243.45. Deduction for later payments in respect of debt 243.50. Deduction for payments for replacement debt 243.55. Effect of Division on later capital allowance deductions 243.57. Effect of Division on later capital allowance balancing adjustments 243.58. Adjustment where debt only partially used for expenditure Subdivision 243-D--Special provisions 243.60. Application of Division to partnerships 243.65. Application where partner reduces liability 243.70. Application of Division to companies ceasing to be 100% subsidiary 243.75. Application of Division where debt forgiveness rules also apply Division 245--Forgiveness of commercial debts 245.1. What this Division is about 245.2. Simplified outline of this Division Subdivision 245-A--Debts to which operative rules apply 245.5. What this Subdivision is about 245.10. Commercial debts 245.15. Non-equity shares 245.20. Parts of debts Subdivision 245-B--What constitutes forgiveness of a debt 245.30. What this Subdivision is about 245.35. What constitutes forgiveness of a debt 245.36. What constitutes forgiveness of a debt if the debt is assigned 245.37. What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt 245.40. Forgivenesses to which operative rules do not apply 245.45. Application of operative rules if forgiveness involves an arrangement Subdivision 245-C--Calculation of gross forgiven amount of a debt 245.48. What this Subdivision is about 245.50. Extent of forgiveness if consideration is given 245.55. General rule for working out the value of a debt 245.60. Special rule for working out the value of a non-recourse debt 245.61. Special rule for working out the value of a previously assigned debt 245.65. Amount offset against amount of debt 245.75. Gross forgiven amount of a debt 245.77. Gross forgiven amount shared between debtors Subdivision 245-D--Calculation of net forgiven amount of a debt 245.80. What this Subdivision is about 245.85. Reduction of gross forgiven amount 245.90. Agreement between companies under common ownership for creditor to forgo capital loss or deduction Subdivision 245-E--Application of net forgiven amounts 245.95. What this Subdivision is about 245.100. Subdivision not to apply to calculation of attributable income 245.105. How total net forgiven amount is applied 245.115. Total net forgiven amount is applied in reduction of tax losses 245.120. Allocation of total net forgiven amount in respect of tax losses 245.130. Remaining total net forgiven amount is applied in reduction of net capital losses 245.135. Allocation of remaining total net forgiven amount in respect of net capital losses 245.145. Remaining total net forgiven amount is applied in reduction of expenditure 245.150. Allocation of remaining total net forgiven amount in respect of expenditures 245.155. How expenditure is reduced--straight line deductions 245.157. How expenditure is reduced--diminishing balance deductions 245.160. Amount applied in reduction of expenditure included in assessable income in certain circumstances 245.175. Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets 245.180. Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets 245.185. Relevant cost bases of investments in associated entities are reduced last 245.190. Reduction of the relevant cost bases of a CGT asset 245.195. No further consequences if there is any remaining unapplied total net forgiven amount Subdivision 245-F--Special rules relating to partnerships 245.200. What this Subdivision is about 245.215. Unapplied total net forgiven amount of a partnership is transferred to partners Subdivision 245-G--Record keeping 245.265. Keeping and retaining records Division 247--Capital protected borrowings 247.1. What this Division is about 247.5. Object of Division 247.10. What capital protected borrowing and capital protection are 247.15. Application of this Division 247.20. Treating capital protection as a put option 247.25. Number of put options 247.30. Exercise or expiry of option Division 250--Assets put to tax preferred use 250.1. What this Division is about Subdivision 250-A--Objects 250.5. Main objects Subdivision 250-B--When this Division applies to you and an asset 250.10. When this Division applies to you and an asset 250.15. General test 250.20. First exclusion--small business entities 250.25. Second exclusion--financial benefits under minimum value limit 250.30. Third exclusion--certain short term or low value arrangements 250.35. Exceptions to section 250-30 250.40. Fourth exclusion--sum of present values of financial benefits less than amount otherwise assessable 250.45. Fifth exclusion--Commissioner determination 250.50. End user of an asset 250.55. Tax preferred end user 250.60. Tax preferred use of an asset 250.65. Arrangement period for tax preferred use 250.70. New tax preferred use at end of arrangement period if tax preferred use continues 250.75. What constitutes a separate asset for the purposes of this Division 250.80. Treatment of particular arrangements in the same way as leases 250.85. Financial benefits in relation to tax preferred use of an asset 250.90. Financial benefit provided directly or indirectly 250.95. Expected financial benefits in relation to an asset put to tax preferred use 250.100. Present value of financial benefit that has already been provided 250.105. Discount rate to be used in working out present values 250.110. Predominant economic interest 250.115. Limited recourse debt test 250.120. Right to acquire asset test 250.125. Effectively non-cancellable, long term arrangement test 250.130. Meaning of effectively non-cancellable arrangement 250.135. Level of expected financial benefits test 250.140. When to retest predominant economic interest under section 250-135 Subdivision 250-C--Denial of, or reduction in, capital allowance deductions 250.145. Denial of capital allowance deductions 250.150. Apportionment rule Subdivision 250-D--Deemed loan treatment of financial benefits provided for tax preferred use 250.155. Arrangement treated as loan 250.160. Financial benefits that are subject to deemed loan treatment 250.180. End value of asset 250.185. Financial benefits subject to deemed loan treatment not assessed Subdivision 250-E--Taxation of deemed loan 250.190. What this Subdivision is about 250.195. Application of Subdivision 250.200. Objects of this Subdivision 250.205. Gains are assessable and losses deductible 250.210. Gain or loss to be taken into account only once under this Act 250.215. Methods for taking gain or loss into account 250.220. Consistency in working out gains or losses (integrity measure) 250.225. Rights and obligations include contingent rights and obligations 250.230. Application of accruals method 250.235. Overview of the accruals method 250.240. Applying accruals method to work out period over which gain or loss is to be spread 250.245. How gain or loss is spread 250.250. Allocating gain or loss to income years 250.255. When to re-estimate 250.260. Re-estimation if balancing adjustment on partial disposal 250.265. When balancing adjustment made 250.270. Exception for subsidiary member leaving consolidated group 250.275. Balancing adjustment 250.280. Financial arrangement received or provided as consideration Subdivision 250-F--Treatment of asset when Division ceases to apply to the asset 250.285. Treatment of asset after Division ceases to apply to the asset 250.290. Balancing adjustment under Subdivision 40-D in some circumstances Subdivision 250-G--Objections against determinations and decisions by the Commissioner 250.295. Objections against determinations and decisions by the Commissioner Division 253--Financial claims scheme for account-holders with insolvent ADIs Subdivision 253-A--Tax treatment of entitlements under financial claims scheme 253.1. What this Subdivision is about 253.5. Payment of entitlement under financial claims scheme treated as payment from ADI 253.10. Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects 253.15. Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement PART 3-25----PARTICULAR KINDS OF TRUSTS Division 275--Australian managed investment trusts 275.1. What this Division is about Subdivision 275-A--Extended concept of managed investment trust for the purposes of this Division 275.5. Treatment of trading trusts etc. 275.10. Trust with investment management activities outside Australia 275.15. Every member of trust is a managed investment trust 275.20. No fund payment made in relation to the income year 275.30. Temporary circumstances outside the control of the trustee 275.35. Application of subsections 102L(15) and 102T(16) Subdivision 275-B--Choice for capital treatment of managed investment trust gains and losses 275.100. Consequences of making choice--CGT to be primary code for calculating MIT gains or losses 275.105. Covered assets 275.110. MIT not to be corporate unit trust or trading trust 275.115. MIT CGT choices 275.120. Consequences of not making choice--revenue account treatment Subdivision 275-C--Carried interests in managed investment trusts 275.200. Gains and losses etc. from carried interests in managed investment trusts reflected in assessable income or deduction PART 3-30----SUPERANNUATION Division 280--Guide to the superannuation provisions 280.1. Effect of this Division 280.5. Overview 280.10. Contributions phase--deductibility 280.15. Contributions phase--limits on superannuation tax concessions 280.20. Investment phase 280.25. Benefits phase--different types of superannuation benefit 280.30. Benefits phase--taxation varies with age of recipient and type of benefit 280.35. Benefits phase--roll-overs 280.40. Other relevant legislative schemes Division 285--General concepts relating to superannuation 285.5. Transfers of property Division 290--Contributions to superannuation funds 290.1. What this Division is about Subdivision 290-A--General rules 290.5. Non-application to roll-over superannuation benefits etc. 290.10. No deductions other than under this Division Subdivision 290-B--Deduction of employer contributions and other employment-connected contributions 290.60. Employer contributions deductible 290.65. Application to employees etc. 290.70. Employment activity conditions 290.75. Complying fund conditions 290.80. Age related conditions 290.85. Contributions for former employees etc. 290.90. Controlling interest deductions 290.95. Amounts offset against superannuation guarantee charge 290.100. Returned contributions assessable Subdivision 290-C--Deducting personal contributions 290.150. Personal contributions deductible 290.155. Complying superannuation fund condition 290.160. Maximum earnings as employee condition 290.165. Age-related conditions 290.170. Notice of intent to deduct conditions 290.175. Deduction limited by amount specified in notice 290.180. Notice may be varied but not revoked or withdrawn Subdivision 290-D--Tax offsets for spouse contributions 290.230. Offset for spouse contribution 290.235. Limit on amount of tax offsets 290.240. Tax file number Division 292--Excess contributions tax 292.1. What this Division is about Subdivision 292-A--Object of this Division 292.5. Object of this Division Subdivision 292-B--Excess concessional contributions tax 292.10. What this Subdivision is about 292.15. Liability for excess concessional contributions tax 292.20. Your excess concessional contributions for a financial year 292.25. Your concessional contributions for a financial year Subdivision 292-C--Excess non-concessional contributions tax 292.75. What this Subdivision is about 292.80. Liability for excess non-concessional contributions tax 292.85. Your excess non-concessional contributions for a financial year 292.90. Your non-concessional contributions for a financial year 292.95. Contributions arising from structured settlements or orders for personal injuries 292.100. Contribution relating to some CGT small business concessions 292.105. CGT cap amount Subdivision 292-D--Modifications for defined benefit interests 292.155. What this Subdivision is about 292.160. Application 292.165. Concessional contributions--special rules for defined benefit interests 292.170. Notional taxed contributions 292.175. Defined benefit interest Subdivision 292-E--Excess contributions tax assessments 292.225. What this Subdivision is about 292.230. Commissioner must make an excess contributions tax assessment 292.235. Part-year assessment 292.240. Validity of assessment 292.245. Objections 292.250. Evidence Subdivision 292-F--Amending excess contributions tax assessments 292.300. What this Subdivision is about 292.305. Amendments within 4 years of the original assessment 292.310. Amended assessments are treated as excess contributions tax assessments 292.315. Later amendments--on request 292.320. Later amendments--fraud or evasion 292.325. Further amendment of an amended particular 292.330. Amendment on review etc. Subdivision 292-G--Collection and recovery 292.380. What this Subdivision is about 292.385. Due date for payment of excess contributions tax 292.390. General interest charge 292.395. Refunds of amounts overpaid 292.405. Release authority 292.410. Giving a release authority to a superannuation provider 292.415. Superannuation provider given release authority must pay amount Subdivision 292-H--Other provisions 292.465. Commissioner's discretion to disregard contributions etc. in relation to a financial year 292.470. Power of Commissioner to obtain information Division 295--Taxation of superannuation entities 295.1. What this Division is about Subdivision 295-A--Provisions of general operation 295.5. Entities to which Division applies 295.10. How to work out the tax payable by superannuation entities 295.15. Division does not impose a tax on property of a State 295.20. Exempting laws ineffective 295.25. Assessments on basis of anticipated SIS Act notice 295.30. Effect of revocation etc. of SIS Act notices 295.35. Acronyms used in tables Subdivision 295-B--Modifications of provisions of this Act 295.85. CGT to be primary code for calculating gains or losses 295.90. CGT rules for pre-30 June 1988 assets 295.95. Deductions related to contributions 295.100. Deductions for investing in PSTs and life policies 295.105. Distributions to PST unitholders Subdivision 295-C--Contributions included 295.155. What this Subdivision is about 295.160. Contributions and payments 295.165. Exception--spouse contributions 295.170. Exception--Government co-contributions and contributions for a child 295.171. Exception--payments from FHSAs and Government FHSA contributions 295.173. Exception--trustee contributions 295.175. Exception--payments by a member spouse 295.180. Exception--choice to exclude certain contributions 295.185. Exception--temporary residents 295.190. Personal contributions and roll-over amounts 295.195. Exclusion of personal contributions--contributions 295.197. Exclusion of personal contributions--successor funds 295.200. Transfers from foreign superannuation funds 295.205. Application of tables to RSA providers 295.210. Former constitutionally protected funds Subdivision 295-D--Contributions excluded 295.260. Transfer of liability to investment vehicle 295.265. Application of pre-1 July 88 funding credits 295.270. Anticipated funding credits Subdivision 295-E--Other income amounts 295.320. Other amounts included in assessable income 295.325. Previously complying funds 295.330. Previously foreign funds 295.335. Amounts excluded from assessable income Subdivision 295-F--Exempt income 295.385. Income from assets set aside to meet current pension liabilities 295.390. Income from other assets used to meet current pension liabilities 295.395. Meaning of segregated non-current assets 295.400. Income of a PST attributable to current pension liabilities 295.405. Other exempt income 295.410. Amount credited to RSA Subdivision 295-G--Deductions 295.460. Benefits for which deductions are available 295.465. Complying funds--deductions for insurance premiums 295.470. Complying funds--deductions for future liability to pay benefits 295.475. RSA providers--deductions for insurance premiums 295.480. Meaning of whole of life policy and endowment policy 295.485. Deductions for increased amount of superannuation lump sum death benefit 295.490. Other deductions 295.495. Amounts that cannot be deducted Subdivision 295-H--Components of taxable income 295.545. Components of taxable income--complying superannuation funds, complying ADFs and PSTs 295.550. Meaning of non-arm's length income 295.555. Components of taxable income--RSA providers Subdivision 295-I--No-TFN contributions 295.605. Liability for tax on no-TFN contributions income 295.610. No-TFN contributions income 295.615. Meaning of quoted (for superannuation purposes) 295.620. No reduction under Subdivision 295-D 295.625. Assessments Subdivision 295-J--Tax offset for no-TFN contributions income 295.675. Entitlement to a tax offset 295.680. Amount of the tax offset Division 301--Superannuation member benefits paid from complying plans etc 301.1. What this Division is about Subdivision 301-A--Application 301.5. Division applies to superannuation member benefits paid from complying plans etc. Subdivision 301-B--Member benefits 301.10. All superannuation benefits are tax free 301.15. Tax free status of tax free component 301.20. Superannuation lump sum--taxable component taxed at 0% up to low rate cap amount, 15% on remainder 301.25. Superannuation income stream--taxable component attracts 15% offset 301.30. Tax free status of tax free component 301.35. Superannuation lump sum--taxable component taxed at 20% 301.40. Superannuation income stream--taxable component is assessable income, 15% offset for disability benefit Subdivision 301-C--Member benefits 301.90. Tax free component and element taxed in fund dealt with under Subdivision 301-B, but element untaxed in the fund dealt with under this Subdivision 301.95. Superannuation lump sum--element untaxed in fund taxed at 15% up to untaxed plan cap amount, top rate on remainder 301.100. Superannuation income stream--element untaxed in fund attracts 10% offset 301.105. Superannuation lump sum--element untaxed in fund taxed at 15% up to low rate cap amount, 30% up to untaxed plan cap amount, top rate on remainder 301.110. Superannuation income stream--element untaxed in fund is assessable income 301.115. Superannuation lump sum--element untaxed in fund taxed at 30% up to untaxed plan cap amount, top rate on remainder 301.120. Superannuation income stream--element untaxed in fund is assessable income 301.125. Unclaimed money payments by the Commissioner Subdivision 301-D--Departing 301.170. Departing Australia superannuation payments 301.175. Treatment of departing Australia superannuation benefits Subdivision 301-E--Superannuation lump sum member benefits less than 301.225. Superannuation lump sum member benefits less than $200 are tax free Division 302--Superannuation death benefits paid from complying plans etc 302.1. What this Division is about Subdivision 302-A--Application 302.5. Division applies to superannuation death benefits paid from complying plans etc. 302.10. Superannuation death benefits paid to trustee of deceased estate Subdivision 302-B--Death benefits to dependant 302.60. All of superannuation lump sum is tax free 302.65. Superannuation income stream benefits are tax free 302.70. Superannuation income stream--tax free status of tax free component 302.75. Superannuation income stream--taxable component attracts 15% offset 302.80. Treatment of element untaxed in the fund of superannuation income stream death benefit to dependant 302.85. Deceased died aged 60 or above or dependant aged 60 years or above--superannuation income stream: element untaxed in fund attracts 10% offset 302.90. Deceased died aged under 60 and dependant aged under 60--superannuation income stream: element untaxed in fund is assessable income Subdivision 302-C--Death benefits to non-dependant 302.140. Superannuation lump sum--tax free status of tax free component 302.145. Superannuation lump sum--element taxed in the fund taxed at 15%, element untaxed in the fund taxed at 30% Subdivision 302-D--Definitions relating to dependants 302.195. Meaning of death benefits dependant 302.200. What is an interdependency relationship? Division 303--Superannuation benefits paid in special circumstances 303.5. Commutation of income stream if you are under 25 etc. 303.10. Superannuation lump sum member benefit paid to member having a terminal medical condition Division 304--Superannuation benefits in breach of legislative requirements etc 304.1. What this Division is about 304.5. Application 304.10. Superannuation benefits in breach of legislative requirements etc. 304.15. Excess payments from release authorities Division 305--Superannuation benefits paid from non-complying superannuation plans 305.1. What this Division is about Subdivision 305-A--Superannuation benefits from Australian non-complying superannuation funds 305.5. Tax treatment of superannuation benefits from certain Australian non-complying superannuation funds Subdivision 305-B--Superannuation benefits from foreign superannuation funds 305.55. Restriction to lump sums received from certain foreign superannuation funds 305.60. Lump sums tax free--foreign resident period 305.65. Lump sums tax free--Australian resident period 305.70. Lump sums received more than 6 months after Australian residency or termination of foreign employment etc. 305.75. Lump sums--applicable fund earnings 305.80. Lump sums paid into complying superannuation plans--choice Division 306--Roll-overs etc 306.1. What this Division is about 306.5. Effect of a roll-over superannuation benefit 306.10. Roll-over superannuation benefit 306.15. Tax on excess untaxed roll-over amounts 306.20. Effect of payment to government of unclaimed superannuation money 306.25. Payments connected with financial claims scheme to RSAs Division 307--Key concepts relating to superannuation benefits 307.1. What this Division is about Subdivision 307-F--defines the concessional limits used in Division 301 known as the low rate cap amount and untaxed plan cap amount. Subdivision 307-A--Superannuation benefits generally 307.5. What is a superannuation benefit? 307.10. Payments that are not superannuation benefits 307.15. Payments for your benefit or at your direction or request Subdivision 307-B--Superannuation lump sums and superannuation income stream benefits 307.65. Meaning of superannuation lump sum 307.70. Meaning of superannuation income stream and superannuation income stream benefit Subdivision 307-C--Components of a superannuation benefit 307.120. Components of superannuation benefit 307.125. Proportioning rule 307.130. Superannuation guarantee payment consists entirely of taxable component 307.135. Superannuation co-contribution benefit payment consists entirely of tax free component 307.140. Contributions-splitting superannuation benefit consists entirely of taxable component 307.142. Components of certain unclaimed money payments 307.145. Modification for disability benefits 307.150. Modification in respect of superannuation lump sum with element untaxed in fund Subdivision 307-D--Superannuation interests 307.200. Regulations relating to meaning of superannuation interests 307.205. Value of superannuation interest 307.210. Tax free component of superannuation interest 307.215. Taxable component of superannuation interest 307.220. What is the contributions segment? 307.225. What is the crystallised segment? Subdivision 307-E--Elements taxed and untaxed in the fund of the taxable component of superannuation benefit 307.275. Element taxed in the fund and element untaxed in the fund of superannuation benefits 307.280. Superannuation benefits from constitutionally protected funds etc. 307.285. Trustee can choose to convert element taxed in the fund to element untaxed in the fund 307.290. Taxed and untaxed elements of death benefit superannuation lump sums 307.295. Superannuation benefits from public sector superannuation schemes may include untaxed element 307.297. Public sector superannuation schemes--elements set by regulations 307.300. Certain unclaimed money payments Subdivision 307-F--Low rate cap and untaxed plan cap amounts 307.345. Low rate cap amount 307.350. Untaxed plan cap amount Subdivision 307-G--Other concepts 307.400. Meaning of service period for a superannuation lump sum Division 310--Loss relief for merging superannuation funds 310.1. What this Division is about Subdivision 310-A--Object of this Division 310.5. Object Subdivision 310-B--Choice to transfer losses 310.10. Original fund's assets extend beyond life insurance policies and units in pooled superannuation trusts 310.15. Original fund's assets include a complying superannuation/FHSA life insurance policy 310.20. Original fund's assets include units in a pooled superannuation trust Subdivision 310-C--Consequences of choosing to transfer losses 310.25. Who losses can be transferred to 310.30. Losses that can be transferred 310.35. Effect of transferring a net capital loss 310.40. Effect of transferring a tax loss Subdivision 310-D--Choice for assets roll-over 310.45. Choosing the assets roll-over 310.50. Choosing the form of the assets roll-over Subdivision 310-E--Consequences of choosing assets roll-over 310.55. CGT assets--if global asset approach chosen 310.60. CGT assets--individual asset approach 310.65. Revenue assets--if global asset approach chosen 310.70. Revenue assets--individual asset approach 310.75. Further consequences for roll-overs involving life insurance companies Subdivision 310-F--Choices 310.85. Choices PART 3-32----CO-OPERATIVES AND MUTUAL ENTITIES Division 315--Demutualisation of private health insurers 315.1. What this Division is about Subdivision 315-A--Capital gains and losses connected with a demutualisation of a private health insurer to be disregarded 315.5. Policy holders to disregard capital gains and losses related to demutualisation of private health insurer 315.10. Effect on the legal personal representative or beneficiary 315.15. Demutualisations to which this Division applies 315.20. What assets are covered 315.25. Demutualising health insurers to disregard capital gains and losses related to demutualisation 315.30. Other entities to disregard capital gains and losses related to demutualisation Subdivision 315-B--Cost base of certain shares and rights in private health insurers 315.80. Cost base and acquisition time of demutualisation assets 315.85. Demutualisation asset 315.90. Participating policy holders Subdivision 315-C--Lost policy holders trust 315.140. Lost policy holders trust 315.145. CGT treatment of demutualisation assets in lost policy holders trust 315.150. Roll-over where assets transferred to lost policy holder 315.155. Trustee assessed if assets dealt with not for benefit of lost policy holder 315.160. Subdivision 126-E does not apply to lost policy holders trust Subdivision 315-D--Special cost base rules for certain shares and rights in holding companies 315.210. Cost base for shares and rights in certain holding companies Subdivision 315-E--Special CGT rule for legal personal representatives and beneficiaries 315.260. Special CGT rule for legal personal representatives and beneficiaries Subdivision 315-F--Non-CGT consequences of demutualisation 315.310. General taxation consequences of issue of demutualisation assets etc. Division 316--Demutualisation of friendly society health or life insurers 316.1. What this Division is about Subdivision 316-A--Application 316.5. Application of this Division Subdivision 316-B--Capital gains and losses connected with the demutualisation 316.50. What this Subdivision is about 316.55. Disregarding capital gains and losses, except some involving receipt of money 316.60. Taking account of some capital gains and losses involving receipt of money 316.65. Valuation factor for sections 316-60, 316-105 and 316-165 316.70. Value of the friendly society 316.75. Disregarding friendly society's capital gains and losses 316.80. Disregarding other entities' capital gains and losses Subdivision 316-C--Cost base of shares and rights issued under the demutualisation 316.100. What this Subdivision is about 316.105. Cost base and time of acquisition of shares and certain rights issued under demutualisation 316.110. Demutualisation assets 316.115. Entities to which section 316-105 applies Subdivision 316-D--Lost policy holders trust 316.150. What this Subdivision is about 316.155. Lost policy holders trust 316.160. Disregarding beneficiaries' capital gains and losses, except some involving receipt of money 316.165. Taking account of some capital gains and losses involving receipt of money by beneficiaries 316.170. Roll-over where shares or rights to acquire shares transferred to beneficiary of lost policy holders trust 316.175. Trustee assessed if shares or rights dealt with not for benefit of beneficiary of lost policy holders trust 316.180. Subdivision 126-E does not apply Subdivision 316-E--Special CGT rules for legal personal representatives and beneficiaries 316.200. Demutualisation assets not owned by deceased but passing to beneficiary in deceased estate 316.205. Interest in lost policy holders trust not owned by deceased but passing to beneficiary in deceased estate Subdivision 316-F--Non-CGT consequences of the demutualisation 316.250. What this Subdivision is about 316.255. General taxation consequences of issue of demutualisation assets etc. 316.260. Franking debits to stop the friendly society and its subsidiaries having franking surpluses 316.265. Franking debits to negate franking credits from some distributions to friendly society and subsidiaries 316.270. Franking debits to negate franking credits from post-demutualisation payments of pre-demutualisation tax 316.275. Franking credits to negate franking debits from refunds of tax paid before demutualisation PART 3-35----INSURANCE BUSINESS Division 320--Life insurance companies 320.1. What this Division is about Subdivision 320-A--Preliminary 320.5. Object of Division Subdivision 320-B--What is included in a life insurance company's assessable income 320.10. What this Subdivision is about 320.15. Assessable income--various amounts 320.30. Assessable income--special provision for certain income years 320.35. Exempt income 320.37. Non-assessable non-exempt income 320.45. Tax treatment of gains or losses from CGT events in relation to complying superannuation/FHSA assets Subdivision 320-C--Deductions and capital losses 320.50. What this Subdivision is about 320.55. Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from complying superannuation/FHSA assets 320.60. Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets 320.65. Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits 320.70. No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability 320.75. Deduction for ordinary investment policies 320.80. Deduction for certain claims paid under life insurance policies 320.85. Deduction for increase in value of liabilities under net risk components of life insurance policies 320.87. Deduction for assets transferred from or to complying superannuation/FHSA asset pool 320.100. Deduction for life insurance premiums paid under certain contracts of reinsurance 320.105. Deduction for assets transferred to segregated exempt assets 320.107. Deductions for increased amount of lump sum death benefit 320.110. Deduction for interest credited to income bonds 320.111. Deduction for funeral policy payout 320.112. Deduction for scholarship plan payout 320.115. No deduction for amounts credited to RSAs 320.120. Capital losses from assets other than complying superannuation/FHSA assets or segregated exempt assets 320.125. Capital losses from complying superannuation/FHSA assets Subdivision 320-D--Income tax, taxable income and tax loss of life insurance companies 320.130. What this Subdivision is about 320.131. Overview of Subdivision 320.133. Object of Subdivision 320.134. Income tax of a life insurance company 320.135. Taxable income and tax loss of each of the 2 classes 320.137. Taxable income--complying superannuation/FHSA class 320.139. Taxable income--ordinary class 320.141. Tax loss--complying superannuation/FHSA class 320.143. Tax loss--ordinary class 320.149. Provisions that apply only in relation to the ordinary class Subdivision 320-E--No-TFN contributions of life insurance companies that are RSA providers 320.150. What this Subdivision is about 320.155. Subdivisions 295-I and 295-J apply to companies that are RSA providers Subdivision 320-F--Complying superannuation 320.165. What this Subdivision is about 320.170. Establishment of complying superannuation/FHSA asset pool 320.175. Valuations of complying superannuation/FHSA assets and complying superannuation/FHSA liabilities for each valuation time 320.180. Consequences of a valuation under section 320-175 320.185. Transfer of assets to complying superannuation/FHSA asset pool otherwise than as a result of a valuation under section 320-175 320.190. Complying superannuation/FHSA liabilities 320.195. Transfer of assets and payment of amounts from a complying superannuation/FHSA asset pool otherwise than as a result of a valuation under section 320-175 320.200. Consequences of transfer of assets to or from complying superannuation/FHSA asset pool Subdivision 320-H--Segregation of assets to discharge exempt life insurance policy liabilities 320.220. What this Subdivision is about 320.225. Segregation of assets for purpose of discharging exempt life insurance policy liabilities 320.230. Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time 320.235. Consequences of a valuation under section 320-230 320.240. Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320-230 320.245. Exempt life insurance policy liabilities 320.246. Exempt life insurance policy 320.247. Policy split into an exempt life insurance policy and another life insurance policy 320.250. Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320-230 320.255. Consequences of transfer of assets to or from segregated exempt assets Subdivision 320-I--Transfers of business 320.300. What this Subdivision is about 320.305. When this Subdivision applies 320.310. Special deductions and amounts of assessable income 320.315. Complying superannuation/FHSA asset pool and segregated exempt assets 320.320. Certain amounts treated as life insurance premiums 320.325. Friendly societies 320.330. Immediate annuities 320.335. Parts of assets treated as separate assets 320.340. Continuous disability policies 320.345. Exemption of management fees Division 321--General insurance companies and companies that self-insure in respect of workers' compensation liabilities Subdivision 321-A--Provision for, and payment of, claims by general insurance companies 321.10. Assessable income to include amount for reduction in outstanding claims liability 321.15. Deduction for increase in outstanding claims liability 321.20. How value of outstanding claims liability is worked out 321.25. Deduction for claims paid during current year Subdivision 321-B--Premium income of general insurance companies 321.45. Assessable income to include gross premiums 321.50. Assessable income to include amount for reduction in value of unearned premium reserve 321.55. Deduction for increase in value of unearned premium reserve 321.60. How value of unearned premium reserve is worked out Subdivision 321-C--Companies that self-insure in respect of workers' compensation liabilities 321.80. Assessable income to include amount for reduction in outstanding claims liability 321.85. Deduction for outstanding claims liability 321.90. How value of outstanding claims liability is worked out 321.95. Deductions for claims paid during current year Division 322--Assistance for policyholders with insolvent general insurers 322.1. What this Division is about Subdivision 322-A--HIH rescue package 322.5. Rescue payments treated as insurance payments by HIH 322.10. HIH Trust exempt from tax 322.15. Certain capital gains and capital losses disregarded Subdivision 322-B--Tax treatment of entitlements under financial claims scheme 322.20. What this Subdivision is about 322.25. Payment of entitlement under financial claims scheme treated as payment from insurer 322.30. Disposal of rights against insurer to APRA and meeting of financial claims scheme entitlement have no CGT effects PART 3-45----RULES FOR PARTICULAR INDUSTRIES AND OCCUPATIONS Division 328--Small business entities 328.5. What this Division is about 328.10. Concessions available to small business entities Subdivision 328-B--Objects of this Division 328.50. Objects of this Division Subdivision 328-C--What is a small business entity 328.105. What this Subdivision is about 328.110. Meaning of small business entity 328.115. Meaning of aggregated turnover 328.120. Meaning of annual turnover 328.125. Meaning of connected with an entity 328.130. Meaning of affiliate Subdivision 328-D--Capital allowances for small business entities 328.170. What this Subdivision is about 328.175. Calculations for depreciating assets 328.180. Low cost assets 328.185. Pooling 328.190. Calculation 328.195. Opening pool balance 328.200. Closing pool balance 328.205. Estimate of taxable use 328.210. Low pool value 328.215. Disposal etc. of depreciating assets 328.220. What happens if you are not a small business entity or do not choose to use this Subdivision for an income year 328.225. Change in business use 328.230. Estimate where deduction denied 328.235. Interaction with Divisions 85 and 86 328.243. Roll-over relief 328.245. Consequences of roll-over 328.247. Pool deductions 328.250. Deductions for assets first used in BAE year 328.253. Deductions for cost addition amounts 328.255. Closing pool balance etc. below zero 328.257. Taxable use Subdivision 328-E--Trading stock for small business entities 328.280. What this Subdivision is about 328.285. Trading stock for small business entities 328.295. Value of trading stock on hand Division 345--FHSAs 345.1. What this Division is about Subdivision 345-A--Treatment of FHSA providers 345.5. FHSA provider that is trustee of FHSA trust--tax payable 345.10. FHSA provider that is trustee of FHSA trust--CGT to be primary code for calculating gains or losses 345.15. FHSA provider that is an ADI (other than RSA provider)--taxable income and standard component of taxable income 345.20. FHSA provider that is an ADI--FHSA component of taxable income 345.25. FHSA provider that is an ADI (other than an RSA provider)--amounts that cannot be deducted 345.30. Amounts of tax paid by FHSA providers that are ADIs Subdivision 345-B--Treatment of FHSA holders 345.50. Credits to and payments from FHSAs etc. Subdivision 345-C--FHSA misuse tax 345.100. Liability for FHSA misuse tax 345.110. Due date for payment of FHSA misuse tax 345.115. General interest charge Division 355--Research and Development 355.1. What this Division is about Subdivision 355-A--Object 355.5. Object Subdivision 355-B--Meaning of R&D activities and other terms 355.20. R&D activities 355.25. Core R&D activities 355.30. Supporting R&D activities 355.35. R&D entities Subdivision 355-C--Entitlement to tax offset 355.100. Entitlement to tax offset 355.105. Deductions under this Division are notional only 355.110. Notional deductions include prepaid expenditure Subdivision 355-D--Notional deductions for R&D expenditure 355.200. What this Subdivision is about 355.205. When notional deductions for R&D expenditure arise 355.210. Conditions for R&D activities 355.215. R&D activities conducted by a permanent establishment for other parts of the body corporate 355.220. R&D activities conducted for a foreign entity 355.225. Expenditure that cannot be notionally deducted Subdivision 355-E--Notional deductions for decline in value of depreciating assets used for R&D activities 355.300. What this Subdivision is about 355.305. When notional deductions for decline in value arise 355.310. Notional application of Division 40 355.315. Balancing adjustments--assets only used for R&D activities Subdivision 355-F--Integrity Rules 355.400. Expenditure incurred while not at arm's length 355.405. Expenditure not at risk 355.410. Disposal of R&D results 355.415. Reducing deductions to reflect mark-ups within groups Subdivision 355-G--Clawback of R&D recoupments 355.430. What this Subdivision is about 355.435. When extra income tax is payable 355.440. Entity receives government recoupment 355.445. Recoupment could relate to R&D activities 355.450. Amount on which extra income tax is payable Subdivision 355-H--Feedstock adjustments 355.460. What this Subdivision is about 355.465. Feedstock adjustment to assessable income 355.470. Feedstock revenue 355.475. Application to connected entities and affiliates Subdivision 355-I--Application to earlier income year R&D expenditure incurred to associates 355.480. Notional deductions for expenditure incurred to associate in earlier income years Subdivision 355-J--Application to R&D partnerships 355.500. What this Subdivision is about 355.505. Meaning of R&D partnership and partner's proportion 355.510. R&D partnership expenditure on R&D activities 355.515. R&D activities conducted by or for an R&D partnership 355.520. When notional deductions arise for decline in value of depreciating assets of R&D partnerships 355.525. Balancing adjustments for R&D partnership assets only used for R&D activities 355.530. Implications for partner's aggregated turnover 355.535. Disposal of R&D results for R&D partnerships 355.540. Application of recoupment rules 355.545. Relevance for net income, and losses, of the R&D partnership Subdivision 355-K--Application to Cooperative Research Centres 355.580. When notional deductions for CRC contributions arise Subdivision 355-W--Other matters 355.700. Objecting to assessment of refundable tax offset 355.705. Effect of findings by Innovation Australia 355.710. Amendment of assessments 355.715. Implications for other deductions and tax offsets Division 376--Films generally Subdivision 376-A--Guide to Division 376 376.1. What this Division is about 376.2. Key features of the tax offsets for Australian production expenditure on films 376.5. Structure of this Division Subdivision 376-B--Tax offsets for Australian expenditure in making a film 376.10. Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset) 376.15. Amount of the location offset 376.20. Minister must issue certificate for a film for the location offset 376.30. Minister to determine a company's qualifying Australian production expenditure for the location offset 376.35. Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset) 376.40. Amount of the PDV offset 376.45. Minister must issue certificate for a film for the PDV offset 376.50. Minister to determine a company's qualifying Australian production expenditure for the PDV offset 376.55. Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset) 376.60. Amount of the producer offset 376.65. Film authority must issue certificate for an Australian film for the producer offset 376.70. Determination of content of film 376.75. Film authority to determine a company's qualifying Australian production expenditure for the producer offset Subdivision 376-C--Production expenditure and qualifying Australian production expenditure 376.125. Production expenditure--general test 376.130. Production expenditure--special qualifying Australian production expenditure 376.135. Production expenditure--specific exclusions 376.140. Production expenditure--special rules for the location offset 376.145. Qualifying Australian production expenditure--general test 376.150. Qualifying Australian production expenditure--specific inclusions 376.155. Qualifying Australian production expenditure--specific exclusions 376.160. Qualifying Australian production expenditure--treatment of services embodied in goods 376.165. Qualifying Australian production expenditure--special rules for the location offset and the PDV offset 376.170. Qualifying Australian production expenditure--special rules for the producer offset 376.175. Expenditure to be worked out on an arm's length basis 376.180. Expenditure incurred by prior production companies 376.185. Expenditure to be worked out excluding GST Subdivision 376-D--Certificates for films and other matters 376.230. Production company may apply for certificate 376.235. Notice of refusal to issue certificate 376.240. Issue of certificate 376.245. Revocation of certificate 376.250. Notice of decision or determination 376.255. Review of decisions by the Administrative Appeals Tribunal 376.260. Minister may make rules about the location offset and the PDV offset 376.265. Film authority may make rules about the producer offset 376.270. Amendment of assessments 376.275. Review in relation to certain production levels Division 380--National Rental Affordability Scheme 380.1. What this Division is about Subdivision 380-A--National Rental Affordability Scheme Tax Offset 380.5. Claims by individuals, corporate tax entities and superannuation funds 380.10. Members of NRAS consortiums--individuals, corporate tax entities and superannuation funds 380.11. Elections by NRAS approved participants 380.12. Elections by NRAS approved participants--tax offsets 380.13. Elections by NRAS approved participants--special rule for partnerships and trustees 380.14. Members of NRAS consortiums--partnerships and trustees 380.15. Entities to whom NRAS rent flows indirectly 380.16. Elections by NRAS approved participants that are partnerships or trustees 380.17. Elections by NRAS approved participants that are partnerships or trustees--tax offsets 380.18. Elections by NRAS approved participants that are partnerships or trustees--special rule for partnerships and trustees 380.20. Trustee of a trust that does not have net income for an income year 380.25. When NRAS rent flows indirectly to or through an entity 380.30. Share of NRAS rent 380.32. Amended certificates Subdivision 380-B--Payments made in relation to the National Rental Affordability Scheme etc 380.35. Payments made and non-cash benefits provided in relation to the National Rental Affordability Scheme Division 385--Primary production 385.1. What this Division is about 385.5. Where to find some other rules relevant to primary producers Subdivision 385-E--Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock 385.90. What this Subdivision is about 385.95. Basic principles for elections under this Subdivision 385.100. Cases where you can make an election 385.105. Election to spread tax profit over 5 years 385.110. Alternative election to defer tax profit and reduce cost of replacement live stock 385.115. Your assessable income includes an amount for replacement live stock you breed 385.120. Purchase price of replacement live stock is reduced 385.125. Alternative election because of bovine tuberculosis has effect over 10 years not 5 Subdivision 385-F--Insurance for loss of live stock or trees 385.130. Insurance for loss of live stock or trees Subdivision 385-G--Double wool clips 385.135. Election to defer including profit on second wool clip Subdivision 385-H--Rules that apply to all elections made under Subdivisions 385-E, 385-F and 385-G 385.145. Partnerships and trusts 385.150. Time for making election 385.155. Amounts are assessable income from carrying on the primary production business 385.160. Effect of certain events on election 385.163. Disentitling events 385.165. New partnership can elect to be treated as same entity as old partnership 385.170. New partnership can elect to take advantage of election made by former owner of the business Division 392--Long-term averaging of primary producers' tax liability 392.1. What this Division is about 392.5. Overview of averaging process Subdivision 392-A--Is your income tax affected by averaging 392.10. Individuals who carry on a primary production business 392.15. Meaning of basic taxable income 392.20. Trust beneficiaries taken to be carrying on primary production business 392.22. Trustee may choose that a beneficiary is a chosen beneficiary of the trust 392.25. Choosing not to have your income tax averaged Subdivision 392-B--What kind of averaging adjustment must you make 392.30. What this Subdivision is about 392.35. Will you get a tax offset or have to pay extra income tax? 392.40. Identify income years for averaging your basic taxable income 392.45. Work out your average income for those years 392.50. Work out the income tax on your average income at basic rates 392.55. Work out the comparison rate Subdivision 392-C--How big is your averaging adjustment 392.60. What this Subdivision is about 392.65. What your averaging adjustment reflects 392.70. Working out your gross averaging amount 392.75. Working out your averaging adjustment 392.80. Work out your taxable primary production income 392.85. Work out your taxable non-primary production income 392.90. Work out your averaging component Subdivision 392-D--Effect of permanent reduction of your basic taxable income 392.95. You are treated as if you had not carried on business before Division 393--Farm management deposits 393.1. What this Division is about Subdivision 393-A--Tax consequences of farm management deposits 393.5. Deduction for making farm management deposit 393.10. Assessability on repayment of deposit 393.15. Transactions to which the deduction, assessment and 12 month rules have modified application Subdivision 393-B--Meaning of farm management deposit and owner 393.20. Farm management deposits 393.25. Owners of farm management deposits 393.27. Trustee may choose that a beneficiary is a chosen beneficiary of the trust 393.28. Application of Division to beneficiary no longer under legal disability 393.30. Effect of contravening requirements 393.35. Requirements of agreement for a farm management deposit 393.40. Repayment of deposit within first 12 months 393.45. Partly repaid farm management deposits Subdivision 393-C--Special rules relating to financial claims scheme for account-holders with insolvent ADIs 393.50. What this Subdivision is about 393.55. Farm management deposits arising from farm management deposits with ADIs subject to financial claims scheme 393.60. Repayment if owner of farm management deposit with insolvent ADI dies, is bankrupt or ceases to be a primary producer Division 394--Forestry managed investment schemes 394.1. What this Division is about 394.5. Object of this Division 394.10. Deduction for amounts paid under forestry managed investment schemes 394.15. Forestry managed investment schemes and related concepts 394.20. Payments on behalf of participant in forestry managed investment scheme 394.25. CGT event in relation to forestry interest in forestry managed investment scheme--initial participant 394.30. CGT event in relation to forestry interest in forestry managed investment scheme--subsequent participant 394.35. 70% DFE rule 394.40. Payments under forestry managed investment scheme 394.45. Direct forestry expenditure Division 402--Environment protection expenditure 402.1. What this Division is about Subdivision 402-W--Urban water tax offset 402.750. What this Subdivision is about 402.755. Entitlement to urban water tax offset 402.760. Certificates 402.765. Amount of urban water tax offset 402.770. Revoking certificates 402.775. AAT review 402.780. Guidelines Division 405--Above-average special professional income of authors, inventors, performing artists, production associates and sportspersons 405.1. What this Division is about 405.5. Special rate of income tax on your above-average special professional income 405.10. Overview of the Division Subdivision 405-A--Above-average special professional income 405.15. When do you have above-average special professional income? Subdivision 405-B--Assessable professional income 405.20. What you count as assessable professional income 405.25. Meaning of special professional, performing artist, production associate, sportsperson and sporting competition 405.30. What you cannot count as assessable professional income 405.35. Limits on counting amounts as assessable professional income 405.40. Joint author or inventor treated as sole author or inventor Subdivision 405-C--Taxable professional income and average taxable professional income 405.45. Working out your taxable professional income 405.50. Working out your average taxable professional income Division 410--Copyright and resale royalty collecting societies 410.1. What this Division is about Subdivision 410-A--Notice of payments 410.5. Copyright collecting society must give notice to member of society 410.50. Resale royalty collecting society must give notice to holder of resale royalty right PART 3-90----CONSOLIDATED GROUPS Division 700--Guide and objects 700.1. What this Part is about 700.5. Overview of this Part 700.10. Objects of this Part Division 701--Core rules 701.1. Single entity rule 701.5. Entry history rule 701.10. Cost to head company of assets of joining entity 701.15. Cost to head company of membership interests in entity that leaves group 701.20. Cost to head company of assets consisting of certain liabilities owed by entity that leaves group 701.25. Tax-neutral consequence for head company of ceasing to hold assets when entity leaves group 701.30. Where entity not subsidiary member for whole of income year Subdivision 716-A--(about assessable income and deductions spread over several membership or non-membership periods); and 701.35. Tax-neutral consequence for entity of ceasing to hold assets when it joins group 701.40. Exit history rule 701.45. Cost of assets consisting of liabilities owed to entity by members of the group 701.50. Cost of certain membership interests of which entity becomes holder on leaving group 701.55. Setting the tax cost of an asset 701.56. Setting the tax cost of an asset--subsection 701-55(6) 701.58. Effect of setting the tax cost of an asset that the head company does not hold under the single entity rule 701.60. Tax cost setting amount 701.61. Assets in relation to Division 230 financial arrangement--head company's assessable income or deduction 701.65. Net income and losses for trusts and partnerships 701.70. Adjustments to taxable income where identities of parties to arrangement merge on joining group 701.75. Adjustments to taxable income where identities of parties to arrangement re-emerge on leaving group 701.80. Accelerated depreciation 701.85. Other exceptions etc. to the rules 701.90. Valuable right to future income treated as separate asset Division 703--Consolidated groups and their members 703.1. What this Division is about 703.5. What is a consolidated group? 703.10. What is a consolidatable group? 703.15. Members of a consolidated group or consolidatable group 703.20. Certain entities that cannot be members of a consolidated group or consolidatable group 703.25. Australian residence requirements for trusts 703.30. When is one entity a wholly-owned subsidiary of another? 703.33. Transfer time for sale of shares in company 703.35. Treating entities as wholly-owned subsidiaries by disregarding employee shares 703.37. Disregarding certain preference shares following an ADI restructure 703.40. Treating entities held through non-fixed trusts as wholly-owned subsidiaries 703.45. Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group 703.50. Choice to consolidate a consolidatable group 703.55. Creating consolidated groups from certain MEC groups 703.58. Notice of choice to consolidate 703.60. Notice of events affecting consolidated group 703.65. Application 703.70. Consolidated group continues in existence with interposed company as head company and original company as a subsidiary member 703.75. Interposed company treated as substituted for original company at all times before the completion time 703.80. Effects on the original company's tax position Division 705--Tax cost setting amount for assets where entities become subsidiary members of consolidated groups 705.1. What this Division is about Subdivision 705-A--Basic case 705.5. What this Subdivision is about 705.10. Application and object of this Subdivision 705.15. Cases where this Subdivision does not have effect 705.20. Tax cost setting amount worked out under this Subdivision 705.25. Tax cost setting amount for retained cost base assets 705.27. Reduction in tax cost setting amount that exceeds market value of certain retained cost base assets 705.30. What is the joining entity's terminating value for an asset? 705.35. Tax cost setting amount for reset cost base assets 705.40. Tax cost setting amount for reset cost base assets held on revenue account 705.45. Reduction in tax cost setting amount for accelerated depreciation assets 705.47. Reduction in tax cost setting amount for some privatised assets 705.55. Order of application of sections 705-40, 705-45 and 705-47 705.56. Modification for tax cost setting in relation to finance leases 705.57. Adjustment to tax cost setting amount where loss of pre-CGT status of membership interests in joining entity 705.58. Assets and liabilities not set off against each other 705.59. Exception: treatment of linked assets and liabilities 705.60. What is the joined group's allocable cost amount for the joining entity? 705.62. No double counting of amounts in allocable cost amount 705.65. Cost of membership interests in the joining entity--step 1 in working out allocable cost amount 705.70. Liabilities of the joining entity--step 2 in working out allocable cost amount 705.75. Liabilities of the joining entity--reductions for purposes of step 2 in working out allocable cost amount 705.80. Liabilities of the joining entity--reductions/increases for purposes of step 2 in working out allocable cost amount 705.85. Liabilities of the joining entity--increases for purposes of step 2 in working out allocable cost amount 705.90. Undistributed, taxed profits accruing to joined group before joining time--step 3 in working out allocable cost amount 705.93. If pre-joining time roll-over from foreign resident company or head company--step 3A in working out allocable cost amount 705.95. Pre-joining time distributions out of certain profits--step 4 in working out allocable cost amount 705.100. Losses accruing to joined group before joining time--step 5 in working out allocable cost amount 705.105. Continuity of holding membership interests--steps 3 to 5 in working out allocable cost amount 705.110. If joining entity transfers a loss to the head company--step 6 in working out allocable cost amount 705.115. If head company becomes entitled to certain deductions--step 7 in working out allocable cost amount 705.125. Pre-CGT proportion for joining entity Subdivision 705-B--Case of group formation 705.130. What this Subdivision is about 705.135. Application and object of this Subdivision 705.140. Subdivision 705-A has effect with modifications 705.145. Order in which tax cost setting amounts are to be worked out where subsidiary members have membership interests in other subsidiary members 705.147. Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by subsidiary members in other such members 705.155. Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests 705.160. Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members 705.163. Modified application of section 705-57 Subdivision 705-C--Case where a consolidated group is acquired by another 705.170. What this Subdivision is about 705.175. Application and object of this Subdivision 705.180. Modifications of Division 701 705.185. Subdivision 705-A has effect with modifications 705.195. Modified application of subsection 705-65(6) 705.200. Modified application of section 705-85 Subdivision 705-D--Where multiple entities are linked by membership interests 705.210. What this Subdivision is about 705.215. Application and object of this Subdivision 705.220. Subdivision 705-A has effect with modifications 705.225. Order in which tax cost setting amounts are to be worked out where linked entities have membership interests in other linked entities 705.227. Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by linked entities in other linked entities 705.230. Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests 705.235. Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain linked entities 705.240. Modified application of section 705-57 Subdivision 705-E--Adjustments for errors etc 705.300. What this Subdivision is about 705.305. Object of this Subdivision 705.310. Operation of Part IVA of the Income Tax Assessment Act 1936 705.315. Errors that attract special adjustment action 705.320. Tax cost setting amounts taken to be correct Division 707--Losses for head companies when entities become members etc Subdivision 707-A--Transfer of previously unutilised losses to head company 707.100. What this Subdivision is about 707.105. Who can utilise the loss? 707.110. Objects of this Subdivision 707.115. What losses this Subdivision applies to 707.120. Transfer of loss from joining entity to head company 707.125. Modified same business test for companies' post-1999 losses 707.130. Modified pattern of distributions test 707.135. Transferring loss transferred to joining entity because same business test was passed 707.140. Effect of transfer of loss 707.145. Cancelling the transfer of the loss 707.150. Loss cannot be utilised for income year ending after the joining time Subdivision 707-B--Can a transferred loss be utilised 707.200. What this Subdivision is about 707.205. Modified period for test for maintaining same ownership 707.210. Utilisation of certain losses transferred from a company depends on company that made the losses earlier Subdivision 707-C--Amount of transferred losses that can be utilised 707.300. What this Subdivision is about 707.305. Object of this Subdivision 707.310. How much of a transferred loss can be utilised? 707.315. What is a bundle of losses? 707.320. What is the available fraction for a bundle of losses? 707.325. Modified market value of an entity becoming a member of a consolidated group [see Note 8] 707.330. Losses transferred from former head company 707.335. Limit on utilising transferred losses if circumstances change during income year 707.340. Utilising transferred losses while exempt income remains 707.345. Other provisions are subject to this Subdivision Subdivision 707-D--Special rules about losses 707.400. Head company's business before and after consolidation not compared 707.410. Exit history rule does not treat entity as having made a loss 707.415. Application of losses with nil available fraction for certain purposes Division 709--Other rules applying when entities become subsidiary members etc Subdivision 709-A--Franking accounts 709.50. What this Subdivision is about 709.55. Object of this Subdivision 709.60. Nil balance franking account for joining entity 709.65. Subsidiary member's franking account does not operate 709.70. Credits arising in head company's franking account 709.75. Debits arising in head company's franking account 709.80. Subsidiary member's distributions on employee shares and certain preference shares taken to be distributions by the head company 709.85. Non-share distributions by subsidiary members taken to be distributions by head company 709.90. Subsidiary member's distributions to foreign resident taken to be distributions by head company 709.95. Payment of group liability by former subsidiary member 709.100. Refund of income tax to former subsidiary member Subdivision 709-B--Imputation issues 709.150. What this Subdivision is about 709.155. Testing consolidated groups 709.160. Subsidiary member is exempting entity 709.165. Subsidiary member is former exempting entity 709.170. Head company and subsidiary are exempting entities 709.175. Head company is former exempting entity Subdivision 709-C--Treatment of excess franking deficit tax offsets when entity becomes a subsidiary member of a consolidated group 709.180. What this Subdivision is about 709.185. Joining entity's excess franking deficit tax offsets transferred to head company 709.190. Exit history rule not to treat leaving entity as having a franking deficit tax offset excess Subdivision 709-D--Deducting bad debts 709.200. What this Subdivision is about 709.205. Application of this Subdivision 709.210. Object of this Subdivision 709.215. Limit on deduction of bad debt 709.220. Limit on deduction of swap loss Division 711--Tax cost setting amount for membership interests where entities cease to be subsidiary members of consolidated groups 711.1. What this Division is about 711.5. Application and object of this Division 711.10. Tax cost setting amount worked out under this Division 711.15. Tax cost setting amount where no multiple exit 711.20. What is the old group's allocable cost amount for the leaving entity? 711.25. Terminating values of the leaving entity's assets--step 1 in working out allocable cost amount 711.30. What is the head company's terminating value for an asset? 711.35. If head company becomes entitled to certain deductions--step 2 in working out allocable cost amount 711.40. Liabilities owed to the leaving entity by members of the old group--step 3 in working out allocable cost amount 711.45. Liabilities etc. owed by the leaving entity--step 4 in working out allocable cost amount 711.55. Tax cost setting amount for membership interests where multiple exit 711.65. Membership interests treated as having been acquired before 20 September 1985 711.70. Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711-65--application of Division 149 to head company 711.75. Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711-65--application of CGT event K6 Division 713--Rules for particular kinds of entities Subdivision 713-A--Trusts 713.20. Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests 713.25. Undistributed, realised profits that accrue to joined group before joining time and could be distributed tax free--step 3 in working out allocable cost amount 713.50. Factors to consider Subdivision 713-C--Some unit trusts treated like head companies of consolidated groups 713.120. What this Subdivision is about 713.125. Object of this Subdivision 713.130. Choosing to form a consolidated group 713.135. Effects of choice 713.140. Modifications of the applied law Subdivision 713-E--Partnerships 713.200. What this Subdivision is about 713.205. Objects of this Subdivision 713.210. Partnership cost setting interests 713.215. Terminating value for partnership cost setting interest 713.220. Set tax cost of partnership cost setting interests if partner joins consolidated group 713.225. Tax cost setting amount for partnership cost setting interest 713.235. Partnership joins group--set tax cost of partnership assets 713.240. Partnership joins group--tax cost setting amount for partnership asset 713.250. Partnership leaves group--standard provisions modified 713.255. Partnership leaves group--tax cost setting amount for partnership cost setting interests 713.260. Partnership leaves group--tax cost setting amount for assets consisting of being owed certain liabilities 713.265. Partnership leaves group--adjustments to leaving partner's allocable cost amount Subdivision 713-L--Life insurance companies 713.500. What this Subdivision is about 713.505. Head company treated as a life insurance company 713.510. Certain subsidiaries of life insurance companies cannot be members of consolidated group 713.510A. Disregard single entity rule in working out certain amounts in respect of life insurance company 713.511. Treatment of certain liabilities for income year when life insurance company joins consolidated group 713.515. Certain assets taken to be retained cost base assets where life insurance company joins group 713.520. Valuing certain liabilities where life insurance company joins group 713.525. Obligation to value certain assets and liabilities at joining time 713.530. Treatment of certain losses of life insurance company 713.535. Losses of entities whose membership interests are complying superannuation/FHSA assets of life insurance company 713.540. Losses of entities whose membership interests are segregated exempt assets of life insurance company 713.545. Treatment of franking surplus in franking account of life insurance subsidiary joining group 713.550. Treatment of head company's franking account after joining 713.565. Treatment of certain liabilities for income year when life insurance company leaves consolidated group 713.570. Certain losses transferred to leaving company 713.575. Terminating value of certain assets where life insurance company leaves group 713.580. Valuing certain liabilities where life insurance company leaves group 713.585. Obligation to value certain assets and liabilities at leaving time Subdivision 713-M--General insurance companies 713.700. What this Subdivision is about 713.705. Certain assets taken to be retained cost base assets where general insurance company joins group 713.710. Treatment of liabilities and reserves for income year when general insurance company joins or leaves group 713.715. If general insurance company joins consolidated group 713.720. If general insurance company leaves consolidated group 713.725. Treatment of certain assets and liabilities of general insurance companies Division 715--Interactions between this Part and other areas of the income tax law Subdivision 715-A--Treatment of unrealised losses existing when ownership or control of a company changes before or during consolidation 715.15. Object of this Subdivision 715.25. Subdivision 165-CC stops applying to earlier changeover time Subdivision 165-CC--does not apply to the company in relation to a *changeover time that happened before the membership time, except for the purposes of section 715-30 (which defines 165-CC tagged asset). 715.30. Meaning of 165-CC tagged asset 715.35. Meaning of final RUNL 715.50. Step 1 amount is reduced if membership interest in subsidiary member is 165-CC tagged asset and same business test is failed 715.55. Step 2 amount is affected if liability of subsidiary member is 165-CC tagged asset of another group member and same business test is failed 715.60. Assets that the head company already owns 715.70. Assets of subsidiary member that become those of head company 715.75. Extension of single entity rule and entry history rule 715.80. Application of sections 715-85 to 715-110 715.85. First changeover time for leaving company at or after leaving time 715.90. How same business test applies if leaving time is changeover time for leaving company 715.95. If ownership and control of leaving entity have not changed since head company's last changeover time 715.100. First choice: adjustable values of leaving assets reduced to nil 715.105. Second choice: head company's final RUNL applied in reducing adjustable values of leaving assets that are loss assets 715.110. Third choice: loss denial pool of leaving entity created 715.120. What happens 715.125. First choice: adjustable values of leaving assets reduced to nil 715.130. Second choice: pool's loss denial balance applied in reducing adjustable values of leaving assets that are loss assets 715.135. Third choice: loss denial pool of leaving entity created 715.145. Effect of choice on adjustable value of leaving asset 715.155. When asset leaves pool 715.160. How loss denial balance is applied to losses realised on assets in pool 715.165. When pool ceases to exist 715.175. When choice must be made 715.180. Head company to notify leaving entity of choice 715.185. Leaving entity may choose to cancel loss denial pool by reducing adjustable values of assets in the pool Subdivision 715-B--How Subdivision 165-CD applies to consolidated groups and leaving entities 715.215. Extension of single entity rule and entry history rule 715.225. Working out adjusted unrealised loss using individual asset method 715.230. No reductions or other consequences for interests subject to loss cancellation under Subdivision 715-H 715.240. Application of sections 715-245 to 715-260 715.245. If ownership or control of leaving entity has altered since head company's last alteration time or formation of group 715.250. If head company has had an alteration time but ownership and control of leaving entity have not altered since 715.255. Consequences if leaving entity is a loss company at the leaving time 715.260. If neither of sections 715-245 and 715-250 applies 715.265. Head company does not have relevant equity or debt interest in a loss company if widely held top company does not have such an interest 715.270. Subdivision 165-CD applies Subdivision 715-C--Common rules for the purposes of Subdivisions 715-A and 715-B 715.290. Additional assumptions to be made when using reference time Subdivision 715-D--Treatment of company's deferred losses under Subdivision 170-D on joining a consolidated group 715.310. What is a 170-D deferred loss, and when it revives 715.355. Head company's own deferred losses at formation time 715.360. Deferred losses brought in by subsidiary member 715.365. How loss denial balance is applied when 170-D deferred loss revives Subdivision 715-E--Interactions with Division 775 715.370. Cost setting--reference time for determining currency exchange rate effect Subdivision 715-F--Interactions with Division 230 715.375. Cost setting--amount of liability that is Division 230 financial arrangement 715.380. Exit history rule not to affect certain matters related to Division 230 financial arrangements 715.385. Exit history rule and elective methods applying to Division 230 financial arrangements Subdivision 715-G--How value shifting rules apply to a consolidated group 715.410. Extension of single entity rule and entry history rule 715.450. No reductions or other consequences for interests subject to loss cancellation under Subdivision 715-H Subdivision 715-H--Cancelling loss on realisation event for direct or indirect interest in a member of a consolidated group 715.610. Cancellation of loss 715.615. Exception for interests in entity leaving consolidated group 715.620. Exception if loss attributable to certain matters Subdivision 715-J--Entry history rule and choices 715.660. Head company's choice overriding entry history rule 715.665. Head company's choice to override inconsistency 715.670. Ongoing effect of choices made by entities before joining group 715.675. Head company adopting choice with ongoing effect Subdivision 715-K--Exit history rule and choices 715.700. Choices leaving entity can make ignoring exit history rule 715.705. Choices leaving entity can make ignoring exit history rule to overcome inconsistencies Subdivision 715-U--Effect on conduit foreign income 715.875. Extension of single entity rule and entry history rule 715.880. No CFI for leaving entity Subdivision 715-V--Entity ceasing to be exempt from income tax on becoming subsidiary member of consolidated group 715.900. Transition time taken to be just before joining time Subdivision 715-W--Effect on arrangements where CGT roll-overs are obtained 715.910. Effect on restructures--original entity becomes a subsidiary member 715.915. Effect on restructures--original entity is a head company 715.920. Effect on restructures--original entity is a head company that becomes a subsidiary member of another group 715.925. Effect on restructures--original entity ceases being a subsidiary member Division 716--Miscellaneous special rules Subdivision 716-A--Assessable income and deductions spread over several membership or non-membership periods 716.1. What this Division is about 716.15. Assessable income spread over 2 or more income years 716.25. Deductions spread over 2 or more income years 716.70. Capital expenditure that is fully deductible in one income year 716.75. Application 716.80. Head company's assessable income and deductions 716.85. Entity's assessable income and deductions for a non-membership period 716.90. Entity's share of assessable income or deductions of partnership or trust 716.95. Special rule if not all partnership or trust's assessable income or deductions taken into account in working out amount 716.100. Spreading period Subdivision 716-E--Tax cost setting for exploration and prospecting assets 716.300. Prime cost method of working out decline in value Subdivision 716-G--Low-value and software development pools 716.330. Head company's deductions for decline in value of assets in joining entity's low-value pool 716.335. Entity leaving group with asset allocated to head company's low-value pool 716.340. Depreciating assets arising from expenditure in joining entity's software development pool 716.345. Head company taken not to have incurred expenditure Subdivision 716-S--Miscellenous consequences of tax cost setting 716.400. Tax cost setting and bad debts 716.405. Tax cost setting and rights to future income--deduction 716.410. Rights to amounts that are expected to be included in assessable income after joining time Subdivision 716-V--Research and Development 716.500. Head company bound by agreements binding on subsidiary members 716.505. History for entitlement to tax offset: joining entity 716.510. History for entitlement to tax offset: leaving entity Subdivision 716-Z--Other 716.800. Allocating amounts to periods if head company and subsidiary member have different income years 716.850. Grossing up threshold amounts for periods of less than 365 days 716.855. Working out the cost base or reduced cost base of a pre-CGT asset after certain roll-overs 716.860. CGT event straddling joining or leaving time Division 717--International tax rules Subdivision 717-A--Foreign income tax offsets 717.1. What this Subdivision is about 717.5. Object of this Subdivision 717.10. Head company taken to be liable for subsidiary member's foreign income tax Subdivision 717-D--Transfer of certain surpluses under CFC provisions and former FIF and FLP provisions 717.200. What this Subdivision is about 717.205. Object of this Subdivision 717.210. Attribution surpluses 717.220. FIF surpluses 717.227. Deferred attribution credits Subdivision 717-E--Transfer of certain surpluses under CFC provisions and former FIF and FLP provisions 717.235. What this Subdivision is about 717.240. Object of this Subdivision 717.245. Attribution surpluses 717.255. FIF surpluses 717.262. Deferred attribution credits Subdivision 717-O--Offshore banking units 717.700. What this Subdivision is about 717.705. Object of this Subdivision 717.710. Head company treated as OBU Division 719--MEC groups Subdivision 719-A--Modified application of Part 3-90 to MEC groups 719.2. Modified application of Part 3-90 to MEC groups Subdivision 719-B--MEC groups and their members 719.4. What this Subdivision is about 719.5. What is a MEC group? 719.10. What is a potential MEC group? 719.15. What is an eligible tier-1 company? 719.20. What is a top company and a tier-1 company? 719.25. Head company, subsidiary members and members of a MEC group 719.30. Treating entities as wholly-owned subsidiaries by disregarding employee shares 719.35. Treating entities held through non-fixed trusts as wholly-owned subsidiaries 719.40. Special conversion event--potential MEC group 719.45. Application of sections 703-20 and 703-25 719.50. Eligible tier-1 companies may choose to consolidate a potential MEC group 719.55. When choice starts to have effect 719.60. Appointment of provisional head company 719.65. Qualifications for the provisional head company of a MEC group 719.70. Income year of new provisional head company to be the same as that of former provisional head company 719.75. Head company 719.76. Notice of choice to consolidate 719.77. Notice in relation to new eligible tier-1 members etc. 719.78. Notice of special conversion event 719.79. Notice of appointment of provisional head company after formation of group 719.80. Notice of events affecting MEC group 719.85. Application 719.90. New head company treated as substituted for old head company at all times before the transition time 719.95. No consequences of old head company becoming, and new head company ceasing to be, subsidiary member of the group Subdivision 719-BA--Group conversions involving MEC groups 719.120. Application 719.125. Head company of new group retains history of head company of old group 719.130. Provisions of this Part not to apply to conversion 719.135. Provisions of this Part applying to conversion despite section 719-130 719.140. Other provisions of this Part not applying to conversion Subdivision 719-C--MEC group cost setting rules 719.150. What this Subdivision is about 719.155. Object of this Subdivision 719.160. Tax cost setting rules for joining have effect with modifications 719.165. Trading stock value not set for assets of eligible tier-1 companies 719.170. Modified effect of subsections 705-175(1) and 705-185(1) Subdivision 719-F--Losses 719.250. What this Subdivision is about 719.255. Special rules 719.260. Special test for utilising a loss because a company maintains the same owners 719.265. What is the test company? 719.270. Assumptions about the test company having made the loss for an income year 719.275. Assumptions about nothing happening to affect direct and indirect ownership of the test company 719.280. Assumptions about the test company failing to meet the conditions in section 165-12 719.285. Same business test and change of head company 719.300. Application 719.305. Subdivision 707-C affects utilisation of losses made by ongoing head company while it was head company 719.310. Adjustment of available fractions for bundles of losses previously transferred to ongoing head company 719.315. Further adjustment of available fractions for all bundles 719.320. Limit on utilising losses other than the prior group losses 719.325. Cancellation of all losses in a bundle Subdivision 719-H--Imputation issues 719.425. Guide to Subdivision 719-H 719.430. Transfer of franking account balance on cessation event 719.435. Distributions by subsidiary members of MEC group taken to be distributions by head company Subdivision 719-I--Bad debts 719.450. What this Subdivision is about 719.455. Special test for deducting a bad debt because a company maintains the same owners 719.460. Assumptions about nothing happening to affect direct and indirect ownership of the test company 719.465. Assumptions about the test company failing to meet the conditions in section 165-123 Subdivision 719-J--MEC group cost setting rules 719.500. What this Subdivision is about 719.505. Application and object of this Subdivision 719.510. Modified operation of paragraphs 711-15(1)(b) and (c) Subdivision 719-K--MEC group cost setting rules 719.550. What this Subdivision is about 719.555. Application and object of this Subdivision 719.560. Pooled interests 719.565. Setting cost of reset interests 719.570. Cost setting amount Subdivision 719-T--Interactions between this Part and other areas of the income tax law 719.700. Changeover times under section 165-115C or 165-115D 719.705. Additional changeover times for head company of MEC group 719.720. Alteration times under section 165-115L or 165-115M 719.725. Additional alteration times for head company of MEC group 719.730. Some alteration times only affect interests in top company 719.735. Some alteration times affect only pooled interests 719.740. Head company does not have relevant equity or debt interest in a loss company if widely held top company does not have such an interest 719.755. Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift 719.775. Cancellation of loss 719.780. Exception for pooled interests in eligible tier-1 companies 719.785. Exception for interests in top company 719.790. Exception for interests in entity leaving MEC group 719.795. Exception if loss attributable to certain matters Division 721--Liability for payment of tax where head company fails to pay on time 721.1. What this Division is about 721.5. Object of this Division 721.10. When this Division operates 721.15. Head company and contributing members jointly and severally liable to pay group liability 721.17. Notice of joint and several liability for general interest charge 721.20. Limit on liability where group first comes into existence 721.25. When a group liability is covered by a tax sharing agreement 721.30. TSA contributing members liable for contribution amounts 721.32. Notice of general interest charge liability under TSA 721.35. When a TSA contributing member has left the group clear of the group liability 721.40. TSA liability and group liability are linked PART 3-95----VALUE SHIFTING Division 723--Direct value shifting by creating right over non-depreciating asset Subdivision 723-A--Reduction in loss from realising non-depreciating asset 723.1. Object 723.10. Reduction in loss from realising non-depreciating asset over which right has been created 723.15. Reduction in loss from realising non-depreciating asset at the same time as right is created over it 723.20. Exceptions 723.25. Realisation event that is only a partial realisation 723.35. Multiple rights created to take advantage of the $50,000 threshold 723.40. Application to CGT asset that is also trading stock or revenue asset 723.50. Effects if right created over underlying asset is also trading stock or a revenue asset Subdivision 723-B--Reducing reduced cost base of interests in entity that acquires non-depreciating asset under roll-over 723.105. Reduced cost base of interest reduced when interest realised at a loss 723.110. Direct and indirect roll-over replacement for underlying asset Division 725--Direct value shifting affecting interests in companies and trusts 725.1. What this Division is about Subdivision 725-A--Scope of the direct value shifting rules 725.45. Main object 725.50. When a direct value shift has consequences under this Division 725.55. Controlling entity test 725.65. Cause of the value shift 725.70. Consequences for down interest only if there is a material decrease in its market value 725.80. Who is an affected owner of a down interest? 725.85. Who is an affected owner of an up interest? 725.90. Direct value shift that will be reversed 725.95. Direct value shift resulting from reversal Subdivision 725-B--What is a direct value shift 725.145. When there is a direct value shift 725.150. Issue of equity or loan interests at a discount 725.155. Meaning of down interests, decrease time, up interests and increase time 725.160. What is the nature of a direct value shift? 725.165. If market value decrease or increase is only partly attributable to the scheme Subdivision 725-C--Consequences of a direct value shift 725.205. Consequences depend on character of down interests and up interests 725.210. Consequences for down interests depend on pre-shift gains and losses 725.220. Neutral direct value shifts 725.225. Issue of bonus shares or units 725.230. Off-market buy-backs Subdivision 725-D--Consequences for down interest or up interest as CGT asset 725.240. CGT consequences; meaning of adjustable value 725.245. Table of taxing events generating a gain for interests as CGT assets 725.250. Table of consequences for adjustable values of interests as CGT assets 725.255. Multiple CGT consequences for the same down interest or up interest Subdivision 725-E--Consequences for down interest or up interest as trading stock or a revenue asset 725.310. Consequences for down interest or up interest as trading stock 725.315. Adjustable value of trading stock 725.320. Consequences for down interest or up interest as a revenue asset 725.325. Adjustable value of revenue asset 725.335. How to work out those consequences 725.340. Multiple trading stock or revenue asset consequences for the same down interest or up interest Subdivision 725-F--Value adjustments and taxed gains 725.365. Decreases in adjustable values of down interests (with pre-shift gains), and taxing events generating a gain 725.370. Uplifts in adjustable values of up interests under certain table items 725.375. Uplifts in adjustable values of up interests under other table items 725.380. Decreases in adjustable value of down interests (with pre-shift losses) Division 727--Indirect value shifting affecting interests in companies and trusts, and arising from non-arm's length dealings 727.1. What this Division is about 727.5. What is an indirect value shift? 727.10. How does this Division deal with indirect value shifts? 727.15. When does an indirect value shift have consequences under this Division? 727.25. Effect of this Division on realisations at a loss that occur before the nature or extent of an indirect value shift can be fully determined Subdivision 727-A--Scope of the indirect value shifting rules 727.95. Main object 727.100. When an indirect value shift has consequences under this Division 727.105. Ultimate controller test 727.110. Common-ownership nexus test (if both losing and gaining entities are closely held) 727.125. No consequences if losing entity is a superannuation entity Subdivision 727-B--What is an indirect value shift 727.150. How to determine whether a scheme results in an indirect value shift 727.155. Providing economic benefits 727.160. When an economic benefit is provided in connection with a scheme 727.165. Preventing double-counting of economic benefits Subdivision 727-C--Exclusions 727.200. What this Subdivision is about 727.215. Amount does not exceed $50,000 727.220. Disposal of asset at cost, or at undervalue if full value is not reflected in adjustable values of equity or loan interests in the losing entity 727.230. Services provided by losing entity to gaining entity for at least their direct cost 727.235. Services provided by gaining entity to losing entity for no more than a commercially realistic price 727.240. What services certain provisions apply to 727.245. How to work out certain amounts for the purposes of sections 727-230 and 727-235 727.250. Distribution by an entity to a member or beneficiary 727.260. Shift down a wholly-owned chain of entities Subdivision 727-D--Working out the market value of economic benefits 727.300. What the rules in this Subdivision are for 727.315. Transfer, for its adjustable value, of depreciating asset acquired for less than $1,500,000 Subdivision 727-E--Key concepts 727.350. Ultimate controller 727.355. Control (for value shifting purposes) of a company 727.360. Control (for value shifting purposes) of a fixed trust 727.365. Control (for value shifting purposes) of a non-fixed trust 727.370. Preventing double counting for percentage stake tests 727.375. Tests in this Subdivision are exhaustive 727.400. When 2 entities have a common-ownership nexus within a period 727.405. Ultimate stake of a particular percentage in a company 727.410. Ultimate stake of a particular percentage in a fixed trust 727.415. Rules for tracing Subdivision 727-F--Consequences of an indirect value shift 727.450. What this Subdivision is about 727.455. Consequences of the indirect value shift 727.460. Affected interests in the losing entity 727.465. Affected interests in the gaining entity 727.470. Exceptions 727.520. Equity or loan interest and related terms 727.525. Indirect equity or loan interest 727.530. Who are the affected owners 727.550. Choosing the adjustable value method 727.555. Giving other affected owners information about the choice Subdivision 727-G--The realisation time method 727.600. What this Subdivision is about 727.610. Consequences of indirect value shift 727.615. Reduction of loss on realisation event for affected interest in losing entity 727.620. Reduction of gain on realisation event for affected interest in gaining entity 727.625. Total gain reductions not to exceed total loss reductions 727.630. How cap in section 727-625 applies if affected interest is also trading stock or a revenue asset 727.635. Splitting an equity or loan interest 727.640. Merging equity or loan interests 727.645. Effect of CGT roll-over 727.700. When 95% services indirect value shift is excluded 727.705. Another provision of the income tax law affects amount related to services by at least $100,000 727.710. Ongoing or recent service arrangement reduces value of losing entity by at least $100,000 727.715. Service arrangements reduce value of losing entity that is a group service provider by at least $500,000 727.720. Abnormal service arrangement reduces value of losing entity that is not a group service provider by at least $500,000 727.725. Meaning of predominantly-services indirect value shift Subdivision 727-H--The adjustable value method 727.750. What this Subdivision is about 727.755. Consequences of indirect value shift 727.770. Reduction under the adjustable value method 727.775. Has there been a disaggregated attributable decrease? 727.780. Working out the reduction on a loss-focussed basis 727.800. Uplift under the attributable increase method 727.805. Has there been a disaggregated attributable increase? 727.810. Scaling-down formula 727.830. CGT assets 727.835. Trading stock 727.840. Revenue assets Subdivision 727-K--Reduction of loss on equity or loan interests realised before the IVS time 727.850. Consequences of scheme under this Subdivision 727.855. Presumed indirect value shift 727.860. Conditions about the prospective gaining entity 727.865. How other provisions of this Division apply to support this Subdivision 727.870. Effect of CGT roll-over 727.875. Application to CGT asset that is also trading stock or revenue asset Subdivision 727-L--Indirect value shift resulting from a direct value shift 727.905. How this Subdivision affects the rest of this Division 727.910. Treatment of value shifted under the direct value shift CHAPTER 4--International aspects of income tax PART 4-5--GENERAL Division 768--Exempt foreign income and gains Subdivision 768-B--Some items of income that are exempt from income tax 768.100. Foreign government officials in Australia 768.105. Compensation arising out of Second World War Subdivision 768-G--Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies 768.500. What this Subdivision is about 768.505. Reducing a capital gain or loss from certain CGT events in relation to certain voting interests 768.510. Active foreign business asset percentage 768.515. Choices to apply market value method or book value method 768.520. Market value method--choice made under subsection 768-515(1) 768.525. Book value method--choice made under subsection 768-515(2) 768.530. Active foreign business asset percentage--modifications for foreign life insurance companies and foreign general insurance companies 768.533. Foreign company that is a FIF using CFC calculation method--treatment as AFI subsidiary under this Subdivision 768.535. Modified rules for foreign wholly-owned groups 768.540. Active foreign business assets of a foreign company 768.545. Assets included in the total assets of a foreign company 768.550. Direct voting percentage in a company 768.555. Indirect voting percentage in a company 768.560. Total voting percentage in a company Subdivision 768-R--Temporary residents 768.900. What this Subdivision is about 768.905. Objects 768.910. Income derived by temporary resident 768.915. Certain capital gains and capital losses of temporary resident to be disregarded 768.950. Individual becoming an Australian resident 768.955. Temporary resident who ceases to be temporary resident but remains an Australian resident 768.960. Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules 768.970. Modification of rules for accruals system of taxation of certain non-resident trust estates 768.980. Interest paid by temporary resident Division 770--Foreign income tax offsets 770.1. What this Division is about 770.5. Object Subdivision 770-A--Entitlement rules for foreign income tax offsets 770.10. Entitlement to foreign income tax offset 770.15. Meaning of foreign income tax, credit absorption tax and unitary tax Subdivision 770-B--Amount of foreign income tax offset 770.65. What this Subdivision is about 770.70. Amount of foreign income tax offset 770.75. Foreign income tax offset limit 770.80. Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply Subdivision 770-C--Rules about payment of foreign income tax 770.130. When foreign income tax is considered paid--taxes paid by someone else 770.135. Foreign income tax paid by CFCs on attributed amounts 770.140. When foreign income tax is considered not paid--anti-avoidance rule Subdivision 770-D--Administration 770.190. Amendment of assessments Division 775--Foreign currency gains and losses 775.5. What this Division is about Subdivision 775-A--Objects of this Division 775.10. Objects of this Division Subdivision 775-B--Realisation of forex gains or losses 775.15. Forex realisation gains are assessable 775.20. Certain forex realisation gains are exempt income 775.25. Certain forex realisation gains are non-assessable non-exempt income 775.27. Certain forex realisation gains are non-assessable non-exempt income 775.30. Forex realisation losses are deductible 775.35. Certain forex realisation losses are disregarded 775.40. Disposal of foreign currency or right to receive foreign currency--forex realisation event 1 775.45. Ceasing to have a right to receive foreign currency--forex realisation event 2 775.50. Ceasing to have an obligation to receive foreign currency--forex realisation event 3 775.55. Ceasing to have an obligation to pay foreign currency--forex realisation event 4 775.60. Ceasing to have a right to pay foreign currency--forex realisation event 5 775.65. Only one forex realisation event to be counted 775.70. Tax consequences of certain short-term forex realisation gains 775.75. Tax consequences of certain short-term forex realisation losses 775.80. You may choose not to have sections 775-70 and 775-75 apply to you 775.85. Forex cost base of a right to receive foreign currency 775.90. Forex entitlement base of a right to pay foreign currency 775.95. Proceeds of assuming an obligation to pay foreign currency 775.100. Net costs of assuming an obligation to receive foreign currency 775.105. Currency exchange rate effect 775.110. Constructive receipts and payments 775.115. Economic set-off to be treated as legal set-off 775.120. Non-arm's length transactions 775.125. CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3 775.130. Certain deductions not allowable 775.135. Right to receive or pay foreign currency 775.140. Obligation to pay or receive foreign currency 775.145. Application of forex realisation events to currency and fungible rights and obligations 775.150. Transitional election 775.155. Applicable commencement date 775.160. Exception--event happens before the applicable commencement date 775.165. Exception--currency or right acquired, or obligation incurred, before the applicable commencement date 775.168. Exception--disposal or redemption of traditional securities 775.175. Application to things happening before commencement Subdivision 775-C--Roll-over relief for facility agreements 775.180. What this Subdivision is about 775.185. What is a facility agreement? 775.190. What is an eligible security? 775.195. You may choose roll-over relief for a facility agreement 775.200. Forex realisation event 4 does not apply 775.205. What is a roll-over? 775.210. Notional loan 775.215. Discharge of obligation to pay the principal amount of a notional loan under a facility agreement--forex realisation event 6 775.220. Material variation of a facility agreement--forex realisation event 7 Subdivision 775-D--Qualifying forex accounts that pass the limited balance test 775.225. What this Subdivision is about 775.230. Election to have this Subdivision apply to one or more qualifying forex accounts 775.235. Variation of election 775.240. Withdrawal of election 775.245. When does a qualifying forex account pass the limited balance test? 775.250. Tax consequences of passing the limited balance test 775.255. Notional realisation when qualifying forex account starts to pass the limited balance test 775.260. Modification of tax recognition time Subdivision 775-E--Retranslation for qualifying forex accounts 775.265. What this Subdivision is about 775.270. You may choose retranslation for a qualifying forex account 775.275. Withdrawal of choice 775.280. Tax consequences of choosing retranslation for an account 775.285. Retranslation of gains and losses relating to a qualifying forex account--forex realisation event 8 Subdivision 775-F--Retranslation under foreign exchange retranslation election under Subdivision 230-D 775.290. What this Subdivision is about 775.295. When this Subdivision applies 775.300. Tax consequences of choosing retranslation for arrangement 775.305. Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies--forex realisation event 9 775.310. When election ceases to apply to arrangement 775.315. Balancing adjustment when election ceases to apply to arrangement Division 802--Foreign residents' income with an underlying foreign source Subdivision 802-A--Conduit foreign income 802.5. What this Subdivision is about 802.10. Objects 802.15. Foreign residents--exempting CFI from Australian tax 802.17. Trust estates and foreign resident beneficiaries--exempting CFI from Australian tax 802.20. Distributions between Australian corporate tax entities--non-assessable non-exempt income 802.25. Conduit foreign income of an Australian corporate tax entity 802.30. Foreign source income amounts 802.35. Capital gains and losses 802.40. Effect of foreign income tax offset on conduit foreign income 802.45. Previous declarations of conduit foreign income 802.50. Receipt of an unfranked distribution from another Australian corporate tax entity 802.55. No double benefits 802.60. No streaming of distributions Division 820--Thin capitalisation rules 820.1. What this Division is about 820.5. Does this Division apply to an entity? 820.10. Map of Division Subdivision 820-A--Preliminary 820.30. Object of Division 820.32. Exemption for private or domestic assets and non-debt liabilities 820.35. Application--$250,000 threshold 820.37. Application--assets threshold 820.39. Exemption of certain special purpose entities 820.40. Meaning of debt deduction Subdivision 820-B--Thin capitalisation rules for outward investing entities 820.65. What this Subdivision is about 820.85. Thin capitalisation rule for outward investing entities (non-ADI) 820.90. Maximum allowable debt 820.95. Safe harbour debt amount--outward investor (general) 820.100. Safe harbour debt amount--outward investor (financial) 820.105. Arm's length debt amount 820.110. Worldwide gearing debt amount 820.115. Amount of debt deduction disallowed 820.120. Application to part year periods Subdivision 820-C--Thin capitalisation rules for inward investing entities 820.180. What this Subdivision is about 820.185. Thin capitalisation rule for inward investing entities (non-ADI) 820.190. Maximum allowable debt 820.195. Safe harbour debt amount--inward investment vehicle (general) 820.200. Safe harbour debt amount--inward investment vehicle (financial) 820.205. Safe harbour debt amount--inward investor (general) 820.210. Safe harbour debt amount--inward investor (financial) 820.215. Arm's length debt amount 820.220. Amount of debt deduction disallowed 820.225. Application to part year periods Subdivision 820-D--Thin capitalisation rules for outward investing entities 820.295. What this Subdivision is about 820.300. Thin capitalisation rule for outward investing entities (ADI) 820.305. Minimum capital amount 820.310. Safe harbour capital amount 820.315. Arm's length capital amount 820.320. Worldwide capital amount 820.325. Amount of debt deduction disallowed 820.330. Application to part year periods Subdivision 820-E--Thin capitalisation rules for inward investing entities 820.390. What this Subdivision is about 820.395. Thin capitalisation rule for inward investing entities (ADI) 820.400. Minimum capital amount 820.405. Safe harbour capital amount 820.410. Arm's length capital amount 820.415. Amount of debt deduction disallowed 820.420. Application to part year periods Subdivision 820-EA--Some financial entities may choose to be treated as ADIs 820.430. When choice can be made, and what effect it has 820.435. Conditions 820.440. Revocation of choice 820.445. How this Subdivision interacts with Subdivision 820-FA Subdivision 820-FA--How the thin capitalisation rules apply to consolidated groups and MEC groups 820.579. What this Subdivision is about 820.581. How this Division applies to head company for income year in which group comes into existence or ceases to exist 820.583. Classification of head company 820.584. Exempt special purpose entities treated as not being member of group 820.585. Exemption for consolidated group headed by foreign-controlled Australian ADI or its holding company 820.587. Additional application of Subdivision 820-D to MEC group that includes foreign-controlled Australian ADI 820.588. Choice to treat specialist credit card institutions as being financial entities and not ADIs 820.589. How Subdivision 820-D applies to a MEC group Subdivision 820-FB--Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company 820.595. What this Subdivision is about 820.597. Choice by head company of consolidated group or MEC group 820.599. Choice by Australian resident company outside consolidatable group and MEC group 820.601. Application 820.603. General 820.605. Effect on establishment entity if certain debt deductions disallowed 820.607. Effect on test periods under this Division 820.609. Effect on classification of head company or single company 820.610. Choice not to be outward investing entity (ADI) or inward investing entity (ADI) 820.611. Values to be based on what would be in consolidated accounts for group 820.613. How Subdivision 820-D applies 820.615. How Subdivision 820-E applies Subdivision 820-G--Calculating the average values 820.625. What this Subdivision is about 820.630. Methods of calculating average values 820.635. The opening and closing balances method 820.640. The 3 measurement days method 820.645. The frequent measurement method 820.675. Amount to be expressed in Australian currency 820.680. Valuation of assets, liabilities and equity capital 820.682. Recognition of assets and liabilities--modifying application of accounting standards 820.683. Recognition of internally generated intangible items--modifying application of accounting standards 820.684. Valuation of intangible assets if no active market--modifying application of accounting standards 820.685. Valuation of debt capital 820.690. Commissioner's power Subdivision 820-H--Control of entities 820.740. What this Subdivision is about 820.745. What is an Australian controlled foreign entity? 820.750. What is an Australian controller of a controlled foreign company? 820.755. What is an Australian controller of a controlled foreign trust? 820.760. What is an Australian controller of a controlled foreign corporate limited partnership? 820.780. What is a foreign controlled Australian entity? 820.785. What is a foreign controlled Australian company? 820.790. What is a foreign controlled Australian trust? 820.795. What is a foreign controlled Australian partnership? 820.815. General rule about thin capitalisation control interest in a company, trust or partnership 820.820. Special rules about calculating TC control interest held by an entity 820.825. Special rules about calculating TC control interests held by a group of entities 820.830. Special rules about determining percentage of TC control interest 820.835. Commissioner's power 820.855. TC direct control interest in a company 820.860. TC direct control interest in a trust 820.865. TC direct control interest in a partnership 820.870. TC indirect control interest in a company, trust or partnership 820.875. TC control tracing interest in a company, trust or partnership Subdivision 820-HA--Controlled foreign entity debt and controlled foreign entity equity 820.880. What this Subdivision is about 820.881. Application 820.885. What is controlled foreign entity debt? 820.890. What is controlled foreign entity equity? Subdivision 820-I--Associate entities 820.900. What this Subdivision is about 820.905. Associate entity 820.910. Associate entity debt 820.915. Associate entity equity 820.920. Associate entity excess amount Subdivision 820-J--Equity interest in a trust or partnership 820.925. What this Subdivision is about 820.930. Equity interest in a trust or partnership Subdivision 820-K--Zero-capital amount 820.940. What this Subdivision is about 820.942. How to work out the zero-capital amount Subdivision 820-KA--Cost-free debt capital and excluded equity interests 820.945. What this Subdivision is about 820.946. Cost-free debt capital and excluded equity interest Subdivision 820-L--Record keeping requirements 820.950. What this Subdivision is about 820.960. Records about Australian permanent establishments 820.965. Review of Commissioner's decision 820.980. Records about arm's length debt amount and arm's length capital amount 820.985. Methodology of revaluation and independence of valuer 820.990. Offences--treatment of partnerships 820.995. Offences--treatment of unincorporated companies Division 830--Foreign hybrids 830.1. What this Division is about Subdivision 830-A--Meaning of 830.5. Foreign hybrid 830.10. Foreign hybrid limited partnership 830.15. Foreign hybrid company Subdivision 830-B--Extension of normal partnership provisions to foreign hybrid companies 830.20. Treatment of company as a partnership 830.25. Partners are the shareholders in the company 830.30. Individual interest of a partner in net income etc. equals percentage of notional distribution of company's profits 830.35. Partner's interest in assets 830.40. Control and disposal of share in partnership income Subdivision 830-C--Special rules applicable while an entity is a foreign hybrid 830.45. Partner's revenue and net capital losses from foreign hybrid not to exceed partner's loss exposure amount 830.50. Deduction etc. where partner's foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner's loss exposure amount 830.55. Meaning of foreign hybrid net capital loss amount 830.60. Meaning of loss exposure amount 830.65. Meaning of outstanding foreign hybrid revenue loss amount 830.70. Meaning of outstanding foreign hybrid net capital loss amount 830.75. Extended meaning of subject to foreign tax Subdivision 830-D--Special rules applicable when an entity becomes or ceases to be a foreign hybrid 830.80. Setting the tax cost of partners' interests in the assets of an entity that becomes a foreign hybrid 830.85. Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid 830.90. What the expression tax cost is set means 830.95. What the expression tax cost setting amount means 830.100. What the expression tax cost means 830.105. What the expression asset-based income tax regime means 830.110. No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid 830.115. Tax losses cannot be transferred to a foreign hybrid 830.120. End of CFC's last statutory accounting period 830.125. How long interest in asset, or asset, held Division 840--Withholding taxes 840.1. What this Division is about Subdivision 840-M--Managed investment trust withholding tax 840.800. What this Subdivision is about 840.805. Liability for managed investment trust withholding tax 840.810. When managed investment trust withholding tax is payable 840.815. Certain income is non-assessable non-exempt income 840.820. Agency rules Division 842--Exempt Australian source income and gains of foreign residents Subdivision 842-B--Some items of Australian source income of foreign residents that are exempt from income tax 842.100. What this Subdivision is about 842.105. Amounts of Australian source ordinary income and statutory income that are exempt Division 855--Capital gains and foreign residents 855.1. What this Division is about Subdivision 855-A--Disregarding a capital gain or loss by foreign residents 855.5. Objects of this Subdivision 855.10. Disregarding a capital gain or loss from CGT events 855.15. When an asset is taxable Australian property 855.20. Taxable Australian real property 855.25. Indirect Australian real property interests 855.30. Principal asset test 855.35. Reducing a capital gain or loss from a business asset--Australian permanent establishments 855.40. Capital gains and losses of foreign residents through fixed trusts Subdivision 855-B--Becoming an Australian resident 855.45. Individual or company becomes an Australian resident 855.50. Trust becomes a resident trust 855.55. CFC becomes an Australian resident CHAPTER 5--Administration PART 5-30----RECORD-KEEPING AND OTHER OBLIGATIONS Division 900--Substantiation rules 900.1. What this Division is about Subdivision 900-A--Application of Division 900.5. Application of the requirements of Division 900 900.10. Substantiation requirement Subdivision 900-B--has some specific exceptions about work expenses. Subdivision 900-H--provides for relief from the effects of failing to substantiate. Subdivision 900-I--has an exception about certain losses or outgoings related to award transport payments. 900.12. Application to recipients and payers of certain withholding payments Subdivision 900-B--Substantiating work expenses 900.15. Getting written evidence 900.20. Keeping travel records 900.25. Retaining the written evidence and travel records 900.30. Meaning of work expense 900.35. Exception for small total of expenses 900.40. Exception for laundry expenses below a certain limit 900.45. Exception for work expense related to award transport payment 900.50. Exception for domestic travel allowance expenses 900.55. Exception for overseas travel allowance expenses 900.60. Exception for reasonable overtime meal allowance 900.65. Crew members on international flights need not keep travel records Subdivision 900-C--Substantiating car expenses 900.70. Getting written evidence 900.75. Retaining the written evidence and odometer records Subdivision 900-D--Substantiating business travel expenses 900.80. Getting written evidence 900.85. Keeping travel records 900.90. Retaining the written evidence and travel records 900.95. Meaning of business travel expense Subdivision 900-E--Written evidence 900.100. What this Subdivision is about 900.105. Ways of getting written evidence 900.110. Time limits 900.115. Written evidence from supplier 900.120. Written evidence of depreciating asset expense 900.125. Evidence of small expenses 900.130. Evidence of expenses considered otherwise too hard to substantiate 900.135. Evidence on a payment summary Subdivision 900-F--Travel records 900.140. What this Subdivision is about 900.145. Purpose of a travel record 900.150. Recording activities in travel records 900.155. Showing which of your activities were income-producing activities Subdivision 900-G--Retaining and producing records 900.160. What this Subdivision is about 900.165. The retention period 900.170. Extending the retention period if an expense is disputed 900.175. Commissioner may tell you to produce your records 900.180. How to comply with a notice 900.185. What happens if you don't comply Subdivision 900-H--Relief from effects of failing to substantiate 900.195. Commissioner's discretion to review failure to substantiate 900.200. Reasonable expectation that substantiation would not be required 900.205. What if your documents are lost or destroyed? Subdivision 900-I--Award transport payments 900.210. What this Subdivision is about 900.215. Deducting an expense related to an award transport payment 900.220. Definition of award transport payment 900.225. Substituted industrial instruments 900.230. Changes to industrial instruments applied for before 29 October 1986 900.235. Changes to industrial instruments solely referable to matters in the instrument 900.240. Deducting in anticipation of receiving award transport payment 900.245. Effect of exception in this Subdivision on exception for small total of expenses 900.250. Effect of exception in this Subdivision on methods of calculating car expense deductions PART 5-35----MISCELLANEOUS Division 905--Offences 905.5. Application of the Criminal Code Division 909--Regulations 909.1. Regulations CHAPTER 6--The Dictionary PART 6-1--CONCEPTS AND TOPICS Division 950--Rules for interpreting this Act 950.100. What forms part of this Act 950.105. What does not form part of this Act 950.150. Guides, and their role in interpreting this Act Division 960--General Subdivision 960-C--Foreign currency 960.49. Objects of this Subdivision 960.50. Translation of amounts into Australian currency 960.55. Application of translation rules Subdivision 960-D--Functional currency 960.56. What this Subdivision is about 960.59. Object of this Subdivision 960.60. You may choose a functional currency 960.61. Functional currency for calculating capital gains and losses on indirect Australian real property interests 960.65. Backdated startup choice 960.70. What is the applicable functional currency? 960.75. What is a transferor trust? 960.80. Translation rules 960.85. Special rule about translation--events that happened before the current choice took effect 960.90. Withdrawal of choice Subdivision 960-E--Entities 960.100. Entities 960.105. Certain entities treated as agents Subdivision 960-F--Distribution by corporate tax entities 960.115. Meaning of corporate tax entity 960.120. Meaning of distribution Subdivision 960-G--Membership of entities 960.130. Members of entities 960.135. Membership interest in an entity 960.140. Ordinary membership interest Subdivision 960-GP--Participation interests in entities 960.180. Total participation interest 960.185. Indirect participation interest 960.190. Direct participation interest 960.195. Non-portfolio interest test Subdivision 960-H--Abnormal trading in shares or units 960.220. Meaning of trading 960.225. Abnormal trading 960.230. Abnormal trading--5% of shares or units in one transaction 960.235. Abnormal trading--suspected 5% of shares or units in a series of transactions 960.240. Abnormal trading--suspected acquisition or merger 960.245. Abnormal trading--20% of shares or units traded over 60 day period Subdivision 960-J--Family relationships 960.250. What this Subdivision is about 960.252. Object of this Subdivision 960.255. Family relationships Subdivision 960-M--Indexation 960.260. What this Subdivision is about 960.265. The provisions for which indexation is relevant 960.270. Indexing amounts 960.275. Indexation factor 960.280. Index number 960.285. Indexation--superannuation and employment termination Subdivision 960-S--Market value 960.400. What this Subdivision is about 960.405. Effect of GST on market value of an asset 960.410. Market value of non-cash benefits 960.415. Amounts that depend on market value Division 974--Debt and equity interests Subdivision 974-A--General 974.1. What this Division is about 974.5. Overview of Division 974.10. Object Subdivision 974-B--Debt interests 974.15. Meaning of debt interest 974.20. The test for a debt interest 974.25. Exceptions to the debt test 974.30. Providing a financial benefit 974.35. Valuation of financial benefits--general rules 974.40. Valuation of financial benefits--rights and options to terminate early 974.45. Valuation of financial benefits--convertible interests 974.50. Valuation of financial benefits--value in present value terms 974.55. The debt interest and its issue 974.60. Debt interest arising out of obligations owed by a number of entities 974.65. Commissioner's power Subdivision 974-C--Equity interests in companies 974.70. Meaning of equity interest in a company 974.75. The test for an equity interest 974.80. Equity interest arising from arrangement funding return through connected entities 974.85. Right or return contingent on economic performance 974.90. Right or return at discretion of company or connected entity 974.95. The equity interest Subdivision 974-D--Common provisions 974.100. Treatment of convertible and converting interests 974.105. Effect of action taken in relation to interest arising from related schemes 974.110. Effect of material change 974.112. Determinations by Commissioner Subdivision 974-E--Non-share distributions by a company 974.115. Meaning of non-share distribution 974.120. Meaning of non-share dividend 974.125. Meaning of non-share capital return Subdivision 974-F--Related concepts 974.130. Financing arrangement 974.135. Effectively non-contingent obligation 974.140. Ordinary debt interest 974.145. Benchmark rate of return 974.150. Schemes 974.155. Related schemes 974.160. Financial benefit 974.165. Convertible and converting interests Division 975--Concepts about companies Subdivision 975-A--General 975.150. Position to affect rights in relation to a company 975.155. When is an entity a controller (for CGT purposes) of a company? 975.160. When an entity has an associate-inclusive control interest Subdivision 975-G--What is a company's share capital account 975.300. Meaning of share capital account Subdivision 975-W--Wholly-owned groups of companies 975.500. Wholly-owned groups 975.505. What is a 100% subsidiary? Division 977--Realisation events, and the gains and losses they realise for income tax purposes 977.5. Realisation event 977.10. Loss realised for income tax purposes 977.15. Gain realised for income tax purposes 977.20. Realisation event 977.25. Disposal of trading stock: loss realised for income tax purposes 977.30. Ending of an income year: loss realised for income tax purposes 977.35. Disposal of trading stock: gain realised for income tax purposes 977.40. Ending of an income year: gain realised for income tax purposes 977.50. Meaning of revenue asset 977.55. Loss or gain realised for income tax purposes Division 976--Imputation 976.1. Franked part of a distribution 976.5. Unfranked part of a distribution 976.10. The part of a distribution that is franked with an exempting credit 976.15. The part of a distribution that is franked with a venture capital credit PART 6-5--DICTIONARY DEFINITIONS Division 995--Definitions 995.1. Definitions [see Notes 2 and 3] INCOME TAX ASSESSMENT ACT 1997 - SECT 1.1 Short title [see Note 1] This Act may be cited as the Income Tax Assessment Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 1.2 Commencement This Act commences on 1 July 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 1.3 Differences in style not to affect meaning (1) This Act contains provisions of the Income Tax Assessment Act 1936 in a rewritten form. (2) If: (a) that Act expressed an idea in a particular form of words; and (b) this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style; the ideas are not to be taken to be different just because different forms of words were used. Note: A public or private ruling about a provision of the Income Tax Assessment Act 1936 is taken also to be a ruling about the corresponding provision of this Act, so far as the 2 provisions express the same ideas: see section 357-85 in Schedule 1 to the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 1.7 Administration of this Act The Commissioner has the general administration of this Act. Note: An effect of this provision is that people who acquire information under this Act are subject to the confidentiality obligations and exceptions in Division 355 in Schedule 1 to the Taxation Administration Act 1953. Table of Subdivisions 2-A How to find your way around 2-B How the Act is arranged 2-C How to identify defined terms and find the definitions 2-D The numbering system 2-E Status of Guides and other non-operative material INCOME TAX ASSESSMENT ACT 1997 - SECT 2.1 The design This Act is designed to help you identify accurately and quickly the provisions that are relevant to your purpose in reading the income tax law. The Act contains tables, diagrams and signposts to help you navigate your way. You can start at Division 3 (What this Act is about) and follow the signposts as far into the Act as you need to go. You may also encounter signposts to several areas of the law that are relevant to you. Each one should be followed. Sometimes they will lead down through several levels of detail. At each successive level, the rules are structured in a similar way. They will often be preceded by a Guide to the rules at that level. The rules themselves will usually deal first with the general or most common case and then with the more particular or special cases. INCOME TAX ASSESSMENT ACT 1997 - SECT 2.5 The pyramid This Act is arranged in a way that reflects the principle of moving from the general case to the particular. In this respect, the conceptual structure of the Act is something like a pyramid. The pyramid shape illustrates the way the income tax law is organised, moving down from the central or core provisions at the top of the pyramid, to general rules of wide application and then to the more specialised topics. Note: The Taxation Administration Act 1953 contains the provisions on collection and recovery of tax and provisions on administration. Table of sections 2-10 When defined terms are identified 2-15 When terms are not identified 2-20 Identifying the defined term in a definition INCOME TAX ASSESSMENT ACT 1997 - SECT 2.10 When defined terms are identified (1) Many of the terms used in the income tax law are defined. (2) Most defined terms in this Act are identified by an asterisk appearing at the start of the term: as in "* business". The footnote that goes with the asterisk contains a signpost to the Dictionary definitions starting at section 995-1. INCOME TAX ASSESSMENT ACT 1997 - SECT 2.15 When terms are not identified (1) Once a defined term has been identified by an asterisk, later occurrences of the term in the same subsection are not usually asterisked. (2) Terms are not asterisked in the non-operative material contained in this Act. Note: The non-operative material is described in Subdivision 2-E. (3) The following basic terms used throughout the Act are not identified with an asterisk. They fall into 2 groups: Key participants in the income tax system Item This term: is defined in: 1. Australian resident section 995-1 2. Commissioner section 995-1 3. company section 995-1 4. entity section 960-100 4A. foreign resident section 995-1 5. individual section 995-1 6. partnership section 995-1 7. person section 995-1 8. trustee section 995-1 9. you section 4-5 Core concepts Item This term: is defined in: 1. amount section 995-1 2. assessable income Division 6 3. assessment section 995-1 4. deduct, deduction Division 8 5. income tax section 995-1 6. income year section 995-1 7. taxable income section 4-15 8. this Act section 995-1 INCOME TAX ASSESSMENT ACT 1997 - SECT 2.20 Identifying the defined term in a definition Within a definition, the defined term is identified by bold italics. Table of sections 2-25 Purposes 2-30 Gaps in the numbering INCOME TAX ASSESSMENT ACT 1997 - SECT 2.25 Purposes Two main purposes of the numbering system in this Act are: * To indicate the relationship between units at different levels. For example, the number of Part 2-15 indicates that the Part is in Chapter 2. Similarly, the number of section 165-70 indicates that the section is in Division 165. * To allow for future expansion of the Act. The main technique here is leaving gaps between numbers. INCOME TAX ASSESSMENT ACT 1997 - SECT 2.30 Gaps in the numbering There are gaps in the numbering system to allow for the insertion of new Divisions and sections. Table of sections 2-35 Non-operative material 2-40 Guides 2-45 Other material INCOME TAX ASSESSMENT ACT 1997 - SECT 2.35 Non-operative material In addition to the operative provisions themselves, this Act contains other material to help you identify accurately and quickly the provisions that are relevant to you and to help you understand them. This other material falls into 2 main categories. INCOME TAX ASSESSMENT ACT 1997 - SECT 2.40 Guides The first is the "Guides". A Guide consists of sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc. Guides form part of this Act but are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered for limited purposes. These are set out in section 950-150. INCOME TAX ASSESSMENT ACT 1997 - SECT 2.45 Other material The other category consists of material such as notes and examples. These also form part of the Act. They are distinguished by type size from the operative provisions, but are not kept separate from them. Table of sections 3-5 Annual income tax 3-10 Your other obligations as a taxpayer 3-15 Your obligations other than as a taxpayer INCOME TAX ASSESSMENT ACT 1997 - SECT 3.5 Annual income tax (1) Income tax is payable for each year by each individual and company, and by some other entities. Note 1: Individuals who are Australian residents, and some trustees, are also liable to pay Medicare levy for each year. See the Medicare Levy Act 1986 and Part VIIB of the Income Tax Assessment Act 1936. Note 2: Income tax is imposed by the Income Tax Act 1986 and the other Acts referred to in the definition of income tax in section 995-1. (2) Most entities have to pay instalments of income tax before the income tax they actually have to pay can be worked out. (3) This Act answers these questions: 1. What instalments of income tax do you have to pay? When and how do you pay them? See Schedule 1 to the Taxation Administration Act 1953. 2. How do you work out how much income tax you must pay? See Division 4, starting at section 4-1. 3. What happens if your income tax is more than the instalments you have paid? When and how must you pay the rest? See Division 5 of this Act and Part 4-15 in Schedule 1 to the Taxation Administration Act 1953. 4. What happens if your income tax is less than the instalments you have paid? How do you get a refund? See Division 3A of Part IIB of the Taxation Administration Act 1953. 5. What are your other obligations as a taxpayer, besides paying instalments and the rest of your income tax? See section 3-10. 6. Do you have any other obligations under the income tax law? See section 3-15. 7. If a dispute between you and the Commissioner of Taxation cannot be settled by agreement, what procedures for objection, review and appeal are available? See Part IVC (sections 14ZL to 14ZZS) of the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 3.10 Your other obligations as a taxpayer (1) Besides paying instalments and the rest of your income tax, your main obligations as a taxpayer are: (a) to keep records and provide information as required by: * the Income Tax Assessment Act 1936; and * Division 900 (which sets out substantiation rules) of this Act; and (b) to lodge income tax returns as required by: * the Income Tax Assessment Act 1936. Tax file numbers (2) Under Part VA of the Income Tax Assessment Act 1936, a tax file number can be issued to you. You are not obliged to apply for a tax file number. However, if you do not quote one in certain situations: * you may become liable for instalments of income tax that would not otherwise have been payable; * the amount of certain of your instalments of income tax may be increased. INCOME TAX ASSESSMENT ACT 1997 - SECT 3.15 Your obligations other than as a taxpayer Your main obligations under the income tax law, other than as a taxpayer are: * in certain situations, to deduct from money you owe to another person, and to remit to the Commissioner, instalments of income tax payable by that person. See Part 4-5 (Collection of income tax instalments), starting at section 750-1. Table of sections 4-1 Who must pay income tax 4-5 Meaning of you 4-10 How to work out how much income tax you must pay 4-15 How to work out your taxable income 4-25 Special provisions for working out your basic income tax liability INCOME TAX ASSESSMENT ACT 1997 - SECT 4.1 Who must pay income tax Income tax is payable by each individual and company, and by some other entities. Note: The actual amount of income tax payable may be nil. For a list of the entities that must pay income tax, see Division 9, starting at section 9-1. INCOME TAX ASSESSMENT ACT 1997 - SECT 4.5 Meaning of you If a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited. Note 1: The expression you is not used in provisions that apply only to entities that are not individuals. Note 2: For circumstances in which the identity of an entity that is a managed investment scheme for the purposes of the Corporations Act 2001 is not affected by changes to the scheme, see Subdivision 960-E of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 4.10 How to work out how much income tax you must pay (1) You must pay income tax for each * financial year. (2) Your income tax is worked out by reference to your taxable income for the income year. The income year is the same as the * financial year, except in these cases: (a) for a company, the income year is the previous financial year; (b) if you have an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year. Note 1: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936. Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936. (3) Work out your income tax for the * financial year as follows: Method statement Step 1. Work out your taxable income for the income year. To do this, see section 4-15. Step 2. Work out your basic income tax liability on your taxable income using: (a) the income tax rate or rates that apply to you for the income year; and (b) any special provisions that apply to working out that liability. See the Income Tax Rates Act 1986 and section 4-25. Step 3. Work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay. For the list of tax offsets, see section 13-1. Step 4. Subtract your * tax offsets from your basic income tax liability. The result is how much income tax you owe for the * financial year. Note 1: Division 63 explains what happens if your tax offsets exceed your basic income tax liability. How the excess is treated depends on the type of tax offset. Note 2: In addition to the income tax worked out under this section, you may also have to pay additional income tax (known as temporary flood and cyclone reconstruction levy) for the 2011-12 financial year. See section 4-10 of the Income Tax (Transitional Provisions) Act 1997. Income tax worked out on another basis (4) For some entities, some or all of their income tax for the * financial year is worked out by reference to something other than taxable income for the income year. See section 9-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 4.15 How to work out your taxable income (1) Work out your taxable income for the income year like this: Method statement Step 1. Add up all your assessable income for the income year. To find out about your assessable income, see Division 6. Step 2. Add up your deductions for the income year. To find out what you can deduct, see Division 8. Step 3. Subtract your deductions from your assessable income (unless they exceed it). The result is your taxable income. (If the deductions equal or exceed the assessable income, you don't have a taxable income.) Note: If the deductions exceed the assessable income, you may have a tax loss which you may be able to deduct in a later income year: see Division 36. (2) There are cases where taxable income is worked out in a special way: Item For this case ... See: 1. A company does not maintain continuity of ownership and control during the income year and does not satisfy the same business test Subdivision 165-B 1B. An entity is a * member of a *consolidated group at any time in the income year Part 3-90 2. A company becomes a PDF (pooled development fund) during the income year, and the PDF component for the income year is a nil amount section 124ZTA of the Income Tax Assessment Act 1936 3. A shipowner or charterer: has its principal place of business outside Australia; and carries passengers, freight or mail shipped in Australia section 129 of the Income Tax Assessment Act 1936 4. An insurer who is a foreign resident enters into insurance contracts connected with Australia sections 142 and 143 of the Income Tax Assessment Act 1936 5. The Commissioner makes a default or special assessment of taxable income sections 167 and 168 of the Income Tax Assessment Act 1936 6. The Commissioner makes a determination of the amount of taxable income to prevent double taxation in certain treaty cases section 24 of the International Tax Agreements Act 1953 Note: A life insurance company can have a taxable income of the complying superannuation/FHSA class and/or a taxable income of the ordinary class for the purposes of working out its income tax for an income year: see Subdivision 320-D. INCOME TAX ASSESSMENT ACT 1997 - SECT 4.25 Special provisions for working out your basic income tax liability The following provisions may increase your basic income tax liability beyond the liability worked out simply by applying the income tax rates to your taxable income: (a) Subdivision 355-G; (b) subsection 392-35(3). Note 1: Subdivision 355-G increases some entities' tax liability by requiring them to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355. Note 2: Subsection 392-35(3) increases some primary producers' tax liability by requiring them to pay extra income tax on their averaging components worked out under Subdivision 392-C. Table of Subdivisions Guide to Division 5 5-A How to work out when to pay your income tax Guide to Division 5 INCOME TAX ASSESSMENT ACT 1997 - SECT 5.1 What this Division is about If your assessed income tax liability exceeds the credits available to you under the PAYG system, this Division explains when you must pay the excess to the Commissioner. If your assessment is amended so that you must pay income tax, or pay more income tax than under the previous assessment, this Division explains: (a) when you must pay the additional tax; and (b) when any associated interest charges must be paid. Note: For provisions about the collection and recovery of income tax and other tax-related liabilities, see Part 4-15 in Schedule 1 to the Taxation Administration Act 1953. Table of sections 5-5 When income tax is payable 5-10 When shortfall interest charge is payable 5-15 General interest charge payable on unpaid income tax or shortfall interest charge INCOME TAX ASSESSMENT ACT 1997 - SECT 5.5 When income tax is payable Scope (1) This section tells you when income tax you must pay for a * financial year is due and payable. Note: The Commissioner may defer the time at which the income tax is due and payable: see section 255-10 in Schedule 1 to the Taxation Administration Act 1953. (2) The income tax is only due and payable if the Commissioner makes an * assessment of your income tax for the year. (3) However, if the Commissioner does make an * assessment of your income tax for the year, the tax may be taken to have been due and payable at a time before your assessment was made. Note: This is to ensure that general interest charge begins to accrue from the same date for all like entities. General interest charge on unpaid income tax is calculated from when the tax is due and payable, not from when the assessment is made: see section 5-15. Original assessments--self-assessment entities (4) If you are a * self-assessment entity, the income tax is due and payable on the first day of the sixth month after the end of the income year. Example: If your income year is the same as the financial year, your income tax would be due and payable on 1 December. Original assessments--other entities (5) If you are not a * self-assessment entity, the income tax is due and payable 21 days after the day (the return day) on or before which you are required to lodge your * income tax return with the Commissioner. Note: For rules about income tax returns and when they are due, see Part IV of the Income Tax Assessment Act 1936. (6) However, if you lodge your return on or before the return day and the Commissioner gives you a notice of * assessment (other than an amended assessment) after the return day, the income tax is due and payable 21 days after the Commissioner gives you the notice. Amended assessments (7) If the Commissioner amends your * assessment, any extra income tax resulting from the amendment is due and payable 21 days after the day on which the Commissioner gives you notice of the amended assessment. Note: Shortfall interest charge may be payable, on any amount of extra income tax payable as a result of the amended assessment, for each day in the period that: (a) starts at the time income tax was due and payable on your original assessment; and (b) ends the day before the day on which the Commissioner gives you notice of the amended assessment. INCOME TAX ASSESSMENT ACT 1997 - SECT 5.10 When shortfall interest charge is payable An amount of * shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge. Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 5.15 General interest charge payable on unpaid income tax or shortfall interest charge If an amount of income tax or * shortfall interest charge that you are liable to pay remains unpaid after the time by which it is due to be paid, you are liable to pay the * general interest charge on the unpaid amount for each day in the period that: (a) starts at the beginning of the day on which the amount was due to be paid; and (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid: (i) the income tax or shortfall interest charge; (ii) general interest charge on any of the income tax or shortfall interest charge. Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953. Note 2: Shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act. Guide to Division 6 Table of sections 6-1 Diagram showing relationships among concepts in this Division Operative provisions 6-5 Income according to ordinary concepts (ordinary income) 6-10 Other assessable income (statutory income) 6-15 What is not assessable income 6-20 Exempt income 6-23 Non-assessable non-exempt income 6-25 Relationships among various rules about ordinary income INCOME TAX ASSESSMENT ACT 1997 - SECT 6.1 Diagram showing relationships among concepts in this Division (1) Assessable income consists of ordinary income and statutory income. (2) Some ordinary income, and some statutory income, is exempt income. (3) Exempt income is not assessable income. (4) Some ordinary income, and some statutory income, is neither assessable income nor exempt income. For the effect of the GST in working out assessable income, see Division 17. (5) An amount of ordinary income or statutory income can have only one status (that is, assessable income, exempt income or non-assessable non-exempt income) in the hands of a particular entity. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 6.5 Income according to ordinary concepts (ordinary income) (1) Your assessable income includes income according to ordinary concepts, which is called ordinary income. Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income. (2) If you are an Australian resident, your assessable income includes the * ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year. (3) If you are a foreign resident, your assessable income includes: (a) the * ordinary income you *derived directly or indirectly from all * Australian sources during the income year; and (b) other * ordinary income that a provision includes in your assessable income for the income year on some basis other than having an * Australian source. (4) In working out whether you have derived an amount of * ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. INCOME TAX ASSESSMENT ACT 1997 - SECT 6.10 Other assessable income (statutory income) (1) Your assessable income also includes some amounts that are not * ordinary income. Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5. (2) Amounts that are not * ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income. Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non-assessable non-exempt income under another provision: see sections 6-20 and 6-23. Note 2: Many provisions in the summary list in section 10-5 contain rules about ordinary income. These rules do not change its character as ordinary income. (3) If an amount would be * statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct. (4) If you are an Australian resident, your assessable income includes your * statutory income from all sources, whether in or out of Australia. (5) If you are a foreign resident, your assessable income includes: (a) your * statutory income from all *Australian sources; and (b) other * statutory income that a provision includes in your assessable income on some basis other than having an * Australian source. INCOME TAX ASSESSMENT ACT 1997 - SECT 6.15 What is not assessable income (1) If an amount is not * ordinary income, and is not * statutory income, it is not assessable income (so you do not have to pay income tax on it). (2) If an amount is * exempt income, it is not assessable income. Note: If an amount is exempt income, there are other consequences besides it being exempt from income tax. For example: * the amount may be taken into account in working out the amount of a tax loss (see section 36-10); * you cannot deduct as a general deduction a loss or outgoing incurred in deriving the amount (see Division 8); * capital gains and losses on assets used solely to produce exempt income are disregarded (see section 118-12). (3) If an amount is * non-assessable non-exempt income, it is not assessable income. Note 1: You cannot deduct as a general deduction a loss or outgoing incurred in deriving an amount of non-assessable non-exempt income (see Division 8). Note 2: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12). INCOME TAX ASSESSMENT ACT 1997 - SECT 6.20 Exempt income (1) An amount of * ordinary income or *statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another * Commonwealth law. For summary lists of provisions about exempt income, see sections 11-5, 11-10 and 11-15. (2) * Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by implication) from being assessable income. (3) By contrast, an amount of * statutory income is exempt income only if it is made exempt from income tax by a provision of this Act outside this Division or another * Commonwealth law. (4) If an amount of * ordinary income or *statutory income is * non-assessable non-exempt income, it is not exempt income. Note: An amount of non-assessable non-exempt income is not taken into account in working out the amount of a tax loss. INCOME TAX ASSESSMENT ACT 1997 - SECT 6.23 Non-assessable non-exempt income An amount of * ordinary income or *statutory income is non-assessable non-exempt income if a provision of this Act or of another * Commonwealth law states that it is not assessable income and is not * exempt income. Note: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12). For a summary list of provisions about non-assessable non-exempt income, see Subdivision 11-B. INCOME TAX ASSESSMENT ACT 1997 - SECT 6.25 Relationships among various rules about ordinary income (1) Sometimes more than one rule includes an amount in your assessable income: * the same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or * the same amount may be included in your assessable income by more than one provision about assessable income. For a summary list of the provisions about assessable income, see section 10-5. However, the amount is included only once in your assessable income for an income year, and is then not included in your assessable income for any other income year. (2) Unless the contrary intention appears, the provisions of this Act (outside this Part) prevail over the rules about * ordinary income. Note: This Act contains some specific provisions about how far the rules about ordinary income prevail over the other provisions of this Act. Table of sections 8-1 General deductions 8-5 Specific deductions 8-10 No double deductions INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1 General deductions (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income. Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your * exempt income or your *non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. For a summary list of provisions about deductions, see section 12-5. (3) A loss or outgoing that you can deduct under this section is called a general deduction. For the effect of the GST in working out deductions, see Division 27. Note If you receive an amount as insurance, indemnity or other recoupment of a loss or outgoing that you can deduct under this section, the amount may be included in your assessable income: see Subdivision 20-A. INCOME TAX ASSESSMENT ACT 1997 - SECT 8.5 Specific deductions (1) You can also deduct from your assessable income an amount that a provision of this Act (outside this Division) allows you to deduct. (2) Some provisions of this Act prevent you from deducting an amount that you could otherwise deduct, or limit the amount you can deduct. (3) An amount that you can deduct under a provision of this Act (outside this Division) is called a specific deduction. Note: If you receive an amount as insurance, indemnity or other recoupment of a deductible expense, the amount may be included in your assessable income: see Subdivision 20-A. For a summary list of provisions about deductions, see section 12-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 8.10 No double deductions If 2 or more provisions of this Act allow you deductions in respect of the same amount (whether for the same income year or different income years), you can deduct only under the provision that is most appropriate. Table of sections 9-1A Effect of this Division 9-1 List of entities 9-5 Entities that work out their income tax by reference to something other than taxable income INCOME TAX ASSESSMENT ACT 1997 - SECT 9.1A Effect of this Division This Division is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 9.1 List of entities Income tax is payable by the entities listed in the table. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Item Income tax is payable by this kind of entity: because of this provision: 1 An individual section 4-1 2 A company, that is: a body corporate; or an unincorporated body (except a partnership) section 4-1 3 A company that was a member of a wholly-owned group if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment section 45-25 4 A superannuation provider in relation to a complying superannuation fund sections 295-5 and 295-605 5 A superannuation provider in relation to a non-complying superannuation fund sections 295-5 and 295-605 6 A superannuation provider in relation to a complying approved deposit fund section 295-5 7 A superannuation provider in relation to a non-complying approved deposit fund section 295-5 8 The trustee of a pooled superannuation trust section 295-5 8A An FHSA provider in relation to an FHSA trust section 345-5 9 A corporate limited partnership section 94J 10 A mutual insurance association (as described in section 121) section 121 11 A trustee (except one covered by another item in this table), but only in respect of some kinds of income of the trust sections 98, 99, 99A and 102 12 The trustee of a corporate unit trust section 102K 13 The trustee of a public trading trust section 102S INCOME TAX ASSESSMENT ACT 1997 - SECT 9.5 Entities that work out their income tax by reference to something other than taxable income (1) For some entities, some or all of their income tax for the * financial year is worked out as described in the table. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Item This kind of entity is liable to pay income tax worked out by reference to: See: 1 A company that was a member of a wholly-owned group is jointly and severally liable to pay an amount of income tax if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment. section 45-25 2 A superannuation provider in relation to a complying superannuation fund is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. sections 295-5 and 295-605 3 A superannuation provider in relation to a non-complying superannuation fund is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. sections 295-5 and 295-605 4 An RSA provider is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. sections 295-5, 295-605 and 320-155 4A An entity is liable to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355. Subdivision 355-G 5 An Australian resident individual with: eligible foreign remuneration under section 23AF; or foreign earnings under section 23AG; (from working in a foreign country) is liable to pay income tax worked out by reference to his or her assessable income less some of his or her deductions. section 23AF or 23AG 6 A trustee covered by item 11 in the table in section 9-1 is liable to pay income tax worked out by reference to the net income of the trust for the income year. sections 98, 99 and 99A 7 The trustee of a corporate unit trust is liable to pay income tax worked out by reference to the net income of the trust for the income year. section 102K 8 The trustee of a public trading trust is liable to pay income tax worked out by reference to the net income of the trust for the income year. section 102S 9 An entity that is liable to pay income tax (worked out by reference to taxable income or otherwise) is also liable to pay income tax worked out by reference to diverted income or diverted trust income for the income year. section 121H 10 An Australian insurer that re-insures overseas can elect to pay, as agent for the re-insurer, income tax worked out by reference to the amount of the re-insurance premiums. section 148 (2) For entities covered by an item in the table in subsection (1), the income year is the same as the * financial year, except in these cases: (a) for a company, or an entity covered by item 2 or 3 in the table, the income year is the previous financial year; (b) if an entity has an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year. Note 1: The Commissioner can allow an entity to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936. Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 10.1 Effect of this Division This Division is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 10.5 List of provisions about assessable income The provisions set out in the table: * include in your assessable income amounts that are not *ordinary income; and * vary or replace the rules that would otherwise apply for certain kinds of * ordinary income. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Accrued leave transfer payments ................................................................................................... 15-5 alienated personal services income ................................................................................................... 86-15 allowances see employment annual leave see leave payments annuities ................................................................................................... 27H approved deposit fund (ADFs) see superannuation attributable income see controlled foreign corporations avoidance of tax general ..................................................................................... 177F diversion of income ................................................................ 121H profits shifted out of Australia ............................................ 136AD, 136AE see also transfers of income bad debts see recoupment balancing adjustment see capital allowances, industrial property, investments, R&D, scientific research and tax exempt entities banking offshore banking activities, income from ......................... 121EG(1) offshore banking unit, deemed interest on payments to by owner ........................................................................... 121EK barter transactions ................................................................................................... 21, 21A, 15-2 beneficiaries see trusts benefits business, non-cash ................................................................. 21A consideration, non-cash ....................................................... 21 meals you provide in an in-house dining facility ............. 32-70 see also employment and superannuation bonus shares see shares bounties ................................................................................................... 15-10 capital allowances excess of termination value over adjustable value generally................................................................ 40-285 for some cars........................................................ 40-370 depreciating asset in low-value pool................................... 40-445(2) expenditure in software development pool....................... 40-460 recovery of petroleum resource rent tax............................ 40-750(3) capital gains ................................................................................................... 102-5 see also insurance car expenses cents per kilometres reimbursement of .............................. 15-70 carried interests carried interests, not ordinary income................................. 118-21 CFCs see controlled foreign corporations charters see shipping child non-trust income of, unearned ............................................ 102AE trust income of, unearned .................................................... 102AG collecting societies payments of royalties by copyright collecting societies.. 15-22 payments of royalties by resale royalty collecting society................................................................................ 15-23 company see controlled foreign corporations, co-operative company, directors, dividends, liquidation, shareholders and shares compensation live stock or trees, recoveries for loss of ............................ 385-130 profits or income, insurance or indemnity for loss of...... 15-30 received by lessor for lessee's non-compliance with lease obligation to repair................................................. 15-25 trading stock, insurance or indemnity for loss of ............. 70-115 see also insurance, live stock, recoupment and scientific research consideration see benefits consolidated groups and MEC groups Assets in relation to Division 230 financial arrangement 701-61(3) controlled foreign corporations (CFCs) attributable income of .......................................................... 456 to 459A see also dividends and taxes co-operative company receipts of ................................................................................ 119 credit union see co-operative company currency gains see foreign exchange currency losses see recoupment death see trusts debt/equity swap see shares and units defence forces allowances and benefits for service as a member of ...... 15-2 depreciation see capital allowances directors excessive remuneration or retirement payment from company ........................................................................... 109 distributions see dividends dividends benefit of LIC capital gain through a trust or partnership ........................................................................ 115-280 general ..................................................................................... 44(1) distribution from a controlled foreign corporation .......... 47A(1) franked dividends, credits on............................................... 207-20(1), 207-35(1), 207-35(3) see also liquidation elections local government, reimbursement of expenses of............ 25-65 see also recoupment electricity connections see recoupment employees see shares employment allowances and benefits in relation to employment or rendering services ............................................................ 15-2 employment termination payment .................................... 82-10 82-65 82-70 other payments for employment termination .................. 83-295 return to work payments ...................................................... 15-3 see accrued leave transfer payments, leave payments, superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 environment see recoupment farm management deposits repayments of ........................................................................ 393-10 films Australian, proceeds of investment in ............................... 26AG financial arrangements gains from................................................................................ 230-15(1) first home saver accounts employer FHSA contributions etc....................................... 15-80 foreign exchange gains ......................................................................................... 775-15 see also recoupment forestry agreement amount where section 82KZMG of the 1936 Act applies................................................................................ 15-45 CGT event in relation to forestry interest in agreement... 82KZMGB forestry managed investment schemes forestry manager's receipts under scheme......................... 15-46 CGT event in relation to forestry interest in scheme for initial participant.............................................................. 394-25(2) CGT event in relation to forestry interest in scheme for subsequent participant.................................................... 394-30(2) franked dividends see dividends funeral policy benefit under........................................................................... 15-55 general insurance companies and companies that self insure gross premiums....................................................................... 321-45 reduction in value of outstanding claims liability............. 321-10 and 321-80 reduction in value of unearned premium reserve............. 321-50 grapevines see recoupment horticultural plants see recoupment improvements see leases imputation see dividends indemnity see compensation and recoupment industrial property see intellectual property and R&D infrastructure borrowings see interest insurance bonuses .................................................................................... 26AH, 15-75 company, demutualisation of ............................................. 121AT life insurance, transfer of contributions by superannuation fund or approved deposit fund to ... 295-260 payments from a non-resident reinsurer in respect of a loss ............................................................................. 148 premiums in respect of Australian business received by non-resident insurers ....................................................... 143 premiums paid to a non-resident for reinsurance ............ 148 premiums paid to mutual insurance association ............. 121 premiums payable to a non-resident for insurance of property in Australia ....................................................... 142(1) premiums payable to a non-resident for insuring an event that can only happen in Australia ..................... 142(1) premiums payable to a non-resident under an insurance contract with a resident .................................................. 142(2) rebates and premiums refunded to a superannuation fund trustee ....................................................................... 295-320 (table item 4) see also compensation, life insurance companies and recoupment interest infrastructure borrowings, on ............................................... 159GZZZZG loans raised in Australia by foreign governments, on ..... 27 overpaid tax, on ..................................................................... 15-35 qualifying securities, on ........................................................ 159GQ, 159GW(1) see also co-operative companies and leases investments non-interest bearing Commonwealth securities, gains on disposal or redemption of .............................................. 26C prizes from investment-related lotteries ............................ 26AJ qualifying securities, payments to partial residents made under ...................................................................... 159GW(2) qualifying securities, amount assessable to issuer of ...... 159GT(1B) qualifying securities, balancing adjustment on the transfer of ......................................................................... 159GS securities, variation in terms of ........................................... 159GV(2) securities lending arrangements .......................................... 26BC traditional securities, gains on the disposal or redemption of .................................................................. 26BB see also films and interest landcare operations see recoupment leased plant ......................................................................................... Division 45 leases amounts received by lessor from lessee for non-compliance with lease obligation to repair.......... 15-25 interest component of payments under non-leveraged finance leases ................................................................... 159GK partnership leasing property under non-leveraged finance lease, new partner or contribution of capital since 14 May 1985 ......................................................... 159GO premiums relating to assignment of a lease granted before 20 September 1985............................................. 26AB profit on disposal of previously leased motor vehicles ... Subdivision 20-B leases of luxury cars accrual amounts..................................................................... 242-35 adjustment amounts (lessee)................................................ 242-70 adjustment amounts (lessor)................................................ 242-65 leave payments accrued leave transfer payment ......................................... 15-5 unused annual leave payment ............................................ 83-10 unused long service leave payment ................................... 83-80 see employment life insurance companies Subdivision 320-B limited recourse debt excessive deduction amount (debtor)................................. 243-40 excessive deduction amount (partner)............................... 243-65 liquidation distribution to a shareholder in winding up a company.. 47(1) live stock death or destruction of ......................................................... Subdivision 385-E departing Australia and ........................................................ 385-160, 385-163 insolvency, and ...................................................................... 385-160, 385-163 profits on death or disposal of ............................................ Subdivision 385-E, 385-160 see also compensation and trading stock long service leave see leave payments losses see compensation lotteries see investments managed investment trusts gains etc. from carried interests............................................ 275-200(2) meals see benefits Mining providing mining, quarrying or prospecting information 15-40 minors see child motor vehicles see car expenses and leases mutual insurance see insurance non-cash benefits see benefits and employment notional sales and loans adjustment amounts (lessee)................................................ 240-110(2) adjustment amounts (lessor)................................................ 240-105(2) notional interest...................................................................... 240-35(1) profit on actual sale............................................................... 240-35(3) profit on notional sale............................................................ 240-35(2) offshore banking units see banking partnerships net income of, partner's interest in ..................................... 92(1) uncontrolled partnership income, effect of ...................... 94 see also leases petroleum resource rent tax, recovery of .............................................. 20-30(1) see also capital allowances premiums see insurance, leases and superannuation primary production see recoupment prizes see investments profits profit-making undertaking or plan...................................... 15-15 sale of property acquired before 20 September 1985 for profit-making by sale...................................................... 25A see also avoidance of tax Project pools An amount received for the abandonment, sale or other disposal of a project........................................................ 40-830, 40-832 property see profits and trusts quarrying see mining and recoupment R&D balancing adjustment ........................................................... 40-292, 40-293, 355-315 and 355-525 disposal of R&D results ........................................................ 355-410 feedstock adjustment ........................................................... 355-465 rates see recoupment recoupment insurance or indemnity for deductible losses or outgoings............................................................................ Subdivision 20-A other recoupment for certain deductible losses or outgoings............................................................................ Subdivision 20-A see also car expenses, compensation, elections and petroleum reimbursements see car expenses, dividends, elections, first home saver accounts, petroleum and recoupment reinsurance see insurance residual value see industrial property retirement payments see directors, leave payments and shareholders rights to income see transfers of income roads see timber royalties ................................................................................................... 15-20 schemes see avoidance of tax scholarship plan benefit under........................................................................... 15-60 scientific research consideration for disposal or destruction of buildings acquired for scientific research ..................................... 73A(4) securities see investments services see co-operative companies, employment, loans and trusts shareholders excessive remuneration or retirement payment from company ........................................................................... 109 loans, payments and credits from company .................... Division 7A of Part III see also dividends shares acquired in a debt/equity swap, profit on the disposal cancellation or redemption of ....................................... 63E(4) bonus shares, cost of ............................................................. 6BA buy-backs ............................................................................... 159GZZZJ to 159GZZZT employee share schemes ...................................................... Subdivisions 83A-B and 83A-C holding company shares held by a subsidiary, cancellation of ................................................................. 159GZZZC to 159GZZZI small-medium enterprise, profit on disposal of shares in ............................................................................................. 128TG to 128TL see also dividends shipping goods shipped in Australia, amounts paid to foreign shipowners and charterers for ....................................... 129 small-medium enterprises (SMEs) see shares subsidies ................................................................................................... 15-10 sugar industry exit grants ................................................................................................... 15-65 superannuation benefits generally ................................................................... Divisions 301 to 306 benefits in breach of legislative requirements .................. Division 304 benefits received from older superannuation funds ....... 26AF, 26AFA complying fund becomes non-complying, effect of ....... 295-320 (table item 2) contributions to an approved deposit fund ...................... Subdivisions 295-C and 295-D contributions to an RSA ....................................................... Subdivision 295-C contributions to a superannuation fund ............................ Subdivisions 295-C and 295-D death benefits ......................................................................... 302-75 302-85 302-90 302-145 foreign superannuation funds and schemes, benefits from ................................................................................... 305-70 member benefits .................................................................... 301-20 301-25 301-35 301-40 Subdivision 301-C foreign fund becoming Australian, effect of .................... 295-320 (table item 3) no-TFN contributions income ............................................. 295-605 returned contributions ........................................................... 290-100 trustee's liability to pay tax ................................................. 295-5(2) and (3) see insurance tax avoidance see avoidance of tax and transfers of income tax exempt entities treatment of income and gains on becoming taxable .... Schedule 2D taxes see dividends, foreign investment funds, interest and recoupment termination of employment see directors, eligible termination payments, leave payments and shareholders theft see recoupment trading stock change in interests in ............................................................. 70-100 death of trader and ............................................................... 70-105 difference between opening and closing value of ........... 70-35 disposal not at arm's length.................................................. 70-20 disposal of outside ordinary course of business ............... 70-90, 70-95 see also compensation and tax exempt entities transfers of income consideration for transfer of right to income .................... 102CA payments for transfer or disposal of property ................. 262 transferee, effect on of transfer of right to income ......... 102C transferor, effect on of transfer of right to income ......... 102B travel expenses see car expenses trusts beneficiary under legal disability or with a vested and indefeasible interest in trust income ............................. 100 deceased estates, income of ................................................ 101A discretionary trusts ................................................................ 101 net income of a trust estate, your present entitlement to 97, 101 non-resident beneficiaries, liability to tax of .................... 98A non-resident trust estates to which you have transferred property or services, income of ..................................... 102AAZD property of applied for benefit of beneficiaries ............... 99B trust estate includes income from another trust estate 94(5) trustees' liability to tax.......................................................... 98, 99, 99A, 102, 102K, 102S see also avoidance of tax and superannuation unearned income see child units acquired in a debt/equity swap, profit on the disposal, cancellation or redemption of ....................................... 63E(4) water conservation see recoupment winding-up see insurance and liquidation wool clips double wool clips, treatment of ........................................... 385-135, 385-155 work in progress receipt of a work in progress amount ................................. 15-50 Table of Subdivisions 11-A Lists of classes of exempt income 11-B Particular kinds off non-assessable non-exempt income Table of sections 11-1A Effect of this Subdivision 11-1 Overview 11-5 Entities that are exempt, no matter what kind of ordinary or statutory income they have 11-10 Ordinary or statutory income which is exempt, no matter whose it is 11-15 Ordinary or statutory income which is exempt only if it is derived by certain entities INCOME TAX ASSESSMENT ACT 1997 - SECT 11.1A Effect of this Subdivision This Subdivision is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 11.1 Overview Ordinary income or statutory income which is exempt from income tax can be divided into 3 main classes: (a) ordinary or statutory income of entities that are exempt, no matter what kind of ordinary or statutory income they have (see table in section 11-5); (b) ordinary or statutory income which is exempt, no matter whose it is (see table in section 11-10); (c) ordinary or statutory income which is exempt only if it is * derived by certain entities (see table in section 11-15). INCOME TAX ASSESSMENT ACT 1997 - SECT 11.5 Entities that are exempt, no matter what kind of ordinary or statutory income they have Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Note: Special rules apply to entities that cease to be exempt. See Schedule 2D to the Income Tax Assessment Act 1936. charity, education, science or religion charitable fund, public........................................................... 50-5 charitable institution.............................................................. 50-5 educational institution, public.............................................. 50-5 Global Carbon Capture and Storage Institute Ltd........... 50-5 religious institution.................................................................. 50-5 scientific institution................................................................ 50-5 scientific research fund.......................................................... 50-5 scientific society etc............................................................... 50-5 community service community service society etc............................................. 50-10 employees and employers employee association............................................................ 50-15 employer association............................................................. 50-15 trade union............................................................................... 50-15 funds established by will or trust contributions to other funds................................................. 50-20 government constitutionally protected fund............................................ 50-25 local governing body.............................................................. 50-25 municipal corporation........................................................... 50-25 public authority....................................................................... 50-25 state/territory bodies.............................................................. 24AK to 24AZ health health benefits organisation................................................. 50-30 hospital..................................................................................... 50-30 medical benefits organisation.............................................. 50-30 HIH rescue package ..... HIH Claims Support Trust ............................................ 322-10 mining British Phosphate Commissioners Banaba Contingency Fund.................................................................................... 50-35 primary or secondary resources, and tourism agricultural society etc. ......................................................... 50-40 aviation society etc. .............................................................. 50-40 horticultural society etc. ....................................................... 50-40 industrial society etc. ............................................................. 50-40 manufacturing society etc. .................................................. 50-40 pastoral society etc. ............................................................... 50-40 tourism society etc. ................................................................ 50-40 viticultural society etc. .......................................................... 50-40 sports, culture or recreation animal racing society etc. ..................................................... 50-45 art society etc. ........................................................................ 50-45 game society etc. ................................................................... 50-45 literature society etc. ............................................................. 50-45 music society etc. ................................................................... 50-45 sport society etc. .................................................................... 50-45 INCOME TAX ASSESSMENT ACT 1997 - SECT 11.10 Ordinary or statutory income which is exempt, no matter whose it is Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. dividends or shares pooled development fund company dividend ............... 124ZM pooled development fund company shares, income from sale of .................................................................... 124ZN financial arrangements gains related to exempt income......................................... 230-30 financial transactions infrastructure borrowings, income in relation to ............ 159GZZZZE pooled development fund company dividends.............. 124ZM pooled development fund company shares, income from sale of .................................................................... 124ZN foreign aspects of income taxation Australian-American Education Foundation, grant from.................................................................................. 51-10 certain forex realisation gains............................................ 775-20 interest judgment debt, personal injury.......................................... 51-57 non-cash benefits business benefit..................................................................... 23L(2) exempt fringe benefit........................................................... 23L(1A) prizes Prime Minister's Prize for Australian History ................. 51-60 Prime Minister's Prize for Science ..................................... 51-60 Prime Minister's Literary Awards ..................................... 51-60 superannuation benefits from non-complying funds ................................ 305-5 INCOME TAX ASSESSMENT ACT 1997 - SECT 11.15 Ordinary or statutory income which is exempt only if it is derived by certain entities Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. agricultural industry exit grants sugar industry exit grants.................................................... 53-10 tobacco industry exit grants............................................... 53-10 copyright collecting societies 51-43 credit unions interest.................................................................................... 23G defence Defence Force member, allowances................................. 51-5 Defence Force member, compensation payments for loss of deployment allowance for warlike service.... 51-5 F-111 Deseal/Reseal Ex-gratia Lump Sum Payments.. 51-5 Former Reserve Defence Force member, compensation payments for loss of pay and/or allowances....................................................................... 51-5 Reserve Defence Force member, pay and allowances.. 51-5 education and training Apprenticeship Wage Top-Up payment, recipient of.... 51-10 bursary, educational allowance etc. ................................. 51-10 and 51-35 Commonwealth Trade Learning Scholarship, recipient of....................................................................................... 51-10 CRAFT scheme, employer's income from...................... 51-10 early completion bonuses for apprentices....................... 51-10 and 51-42 Endeavour Awards, research fellowship under............... 51-10 Endeavour Executive Award............................................. 51-10 foreign student, scholarship and bursary to..................... 842-105 full-time student, income from a scholarship, bursary, other educational allowance or educational assistance......................................................................... 51-10 and 51-35 HECS-HELP benefit, recipient of...................................... 51-10 isolated child, income for the provision of education of........................................................................................... 51-10 and 51-40 secondary student, income for the provision of education of ................................................................... 51-10 and 51-40 Skills for Sustainability for Australian Apprentices payment, recipient of.................................................... 51-10 Tools for Your Trade payment (under the program known as the Australian Apprenticeships Incentives Program), recipient of................................ 51-10 family assistance baby bonus............................................................................ 52-150 child care benefit ................................................................. 52-150 child care rebate.................................................................... 52-150 family tax benefit ................................................................ 52-150 maternity immunisation allowance.................................. 52-150 one-off payment to families ............................................. 52-150 payments to families under the scheme determined under Schedule 3 to the Family Assistance Legislation Amendment (More Help for Families--One-off Payments) Act 2004 ....................................... 52-150 economic security strategy payment to families............ 52-150 payments to families under the scheme determined under Schedule 4 to the Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008......................................................... 52-160 back to school bonus or single income family bonus.... 52-150 payments under the scheme determined under Schedule 4 to the Household Stimulus Package Act (No. 2) 2009.................................................................... 52-165 foreign aspects of income taxation approved overseas project, income from ....................... 23AF Commonwealth of Nations country officer, official salary and foreign income ........................................... 768-100 consul and official staff member, official salary and foreign income ............................................................... 768-100 Defence Force member, pay and allowances from being on eligible duty .................................................... 23AD Defence Force member, foreign resident, pay and allowances of ................................................................. 842-105 Defence Force member, pay and allowances from performing duties in operational areas ...................... 23AC defence of Australia, overseas person's income from assisting in Australia's defence.................................... 842-105 diplomat and official staff member, official salary and foreign income ....................................................... 768-100 educational, scientific, religious or philanthropic society, income of a visiting representative of ......... 842-105 expert, foreign resident, remuneration of ........................ 842-105 foreign society or association representative, income of ...................................................................................... 842-105 government representative and members of the entourage, foreign resident, income of ...................... 842-105 OBU off-shore investment trusts, income to which subsection 121D(6) applies ......................................... 121EL OBU investment trusts for overseas charitable institutions....................................................................... 121EL(2) overseas charitable institutions, income from OBUs..... 121ELA(1) overseas employment income, resident, income of ...... 23AG persecution victim, payments to ....................................... 768-105 press representative, foreign, income of .......................... 842-105 resistance fighter and victim of wartime persecution, payments to ................................................................... 768-105 Territory resident, income from sources in a prescribed Territory .......................................................................... 24G Territory resident company or trust, income from sources outside Australia ............................................. 24F United Nations, income from service with ...................... 23AB United States projects, income from approved overseas projects ........................................................... 23AA health Continence Aids Payment Scheme, payments under ... 52-175 life insurance companies Subdivision 320-B resale royalty collecting societies 51-45 social security or like payments ABSTUDY scheme, payment under................................. Subdivision 52-E Better Start for Children with Disability initiative, Outer Regional and Remote payment under ...................... 52-172 carer adjustment payment................................................. 53-10 carer supplement.................................................................. 52-10 child disability assistance.................................................... Subdivision 52-A Commonwealth education or training payment............ Subdivision 52-F DFISA bonus and DFISA bonus bereavement payment........................................................................... 52-65 disability services payment ................................................ 53-10 economic security strategy payment under the Social Security Act 1991........................................................... 52-10 economic security strategy payment under the Veterans' Entitlements Act 1986................................. 52-65 education entry payment supplement under the Social Security Act 1991........................................................... 52-10 exceptional circumstances relief, payment for .............. 53-10 and 53-15 farmers hardship bonus under the Social Security Act 1991.................................................................................. 52-10 farm help income support................................................... 53-10 and 53-15 Helping Children with Autism package, Outer Regional and Remote payment under ....................................... 52-170 lump sum payment under section 198N of the Veterans' Entitlements Act 1986................................. 52-65 matched savings scheme (income management) payment under the Social Security Act 1991........... 52-10 2006 one-off payment to older Australians under the Social Security Act 1991.............................................. 52-10 payments under the scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006.................................................................................. 52-10 2007 one-off payment to older Australians under the Social Security Act 1991.............................................. 52-10 payments under a scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007........... 52-10 2008 one-off payment to older Australians under the Social Security Act 1991.............................................. 52-10 payments under a scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008... 52-10 payments under the scheme determined under Schedule 4 to the Household Stimulus Package Act (No. 2) 2009.................................................................... 52-165 payments under the scheme determined under Schedule 4 to the Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008 ......................................................... 52-160 2008 one-off payment to older Australians under the Veterans' Entitlements Act 1986................................. 52-65 payments under the scheme determined under item 2 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008... 52-65 one-off payment to carers (carer allowance related) or one-off payment to carers (carer payment related) ........................................................................................... 52-10 payments to carers under the scheme determined under Schedule 3 to the Family Assistance Legislation Amendment (More Help for Families--One-off Payments) Act 2004 ....................................... 52-10 2005 one-off payment to carers (carer payment related), 2005 one-off payment to carers (carer service pension related) or 2005 one-off payment to carers (carer allowance related).............................. 52-10 payments under the scheme determined under Schedule 2 to the Social Security Legislation Amendment (One-off Payments for Carers) Act 2005.................................................................................. 52-10 2006 one-off payment to carers (carer payment related), 2006 one-off payment to carers (wife pension related), 2006 one-off payment to carers (partner service pension related), 2006 one-off payment to carers (carer service pension related) or 2006 one-off payment to carers (carer allowance related) ............................................................................ 52-10 payments under the scheme determined under Schedule 4 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006 ................................................................................. 52-10 2007 one-off payment to carers (carer payment related), 2007 one-off payment to carers (wife pension related), 2007 one-off payment to carers (partner service pension related), 2007 one-off payment to carers (carer service pension related) or 2007 one-off payment to carers (carer allowance related)............................................................................. 52-10 payments under the scheme determined under Schedule 4 to the Social Security and Veterans' Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007........... 52-10 2008 one-off payment to carers (carer payment related), 2008 one-off payment to carers (wife pension related), 2008 one-off payment to carers (partner service pension related), 2008 one-off payment to carers (carer service pension related) or 2008 one-off payment to carers (carer allowance related)............................................................................. 52-10 payments under the scheme determined under Schedule 4 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008... 52-10 pension bonus and pension bonus bereavement payment........................................................................... 52-10 and 52-65 persecution victim, payments to ....................................... 768-105 private health insurance...................................................... 52-125 resistance fighter and victim of wartime persecution, payments to ................................................................... 768-105 social security payments .................................................... Subdivision 52-A training and learning bonus under the Social Security Act 1991........................................................................... 52-10 travelling expenses for Australian participants in British nuclear tests ....................................................... Subdivision 52-CB veteran, Australian and United Kingdom, payment to 53-20 veteran, payment to ............................................................ Subdivisions 52-B and 52-C voluntary income management incentive payment under the Social Security Act 1991............................ 52-10 wounds and disability pension .......................................... 53-10 see also welfare structured settlements and structured orders annuities and lump sums..................................................... Subdivisions 54-B, 54-C and 54-D student see education and training superannuation and related business approved deposit fund, continuously complying fixed interest, income from 25 May 1988 deposits .......... 295-390 of the Income Tax (Transitional Provisions) Act 1997 approved deposit fund, income from a grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 .. 295-405 (table item 1) approved deposit fund, non-reversionary bonuses on policies of life assurance .............................................. 295-335 (table item 1) pooled superannuation trust, income from constitutionally protected funds ................................. 295-335 (table item 2) pooled superannuation trust, income from current pension liabilities of complying superannuation funds ................................................................................ 295-400 pooled superannuation trust, non-reversionary bonuses on policies of life assurance ......................... 295-335 (table item 1) superannuation fund, income from other assets used to meet current pension liabilities ............................... 295-390 superannuation fund, income from segregated current pensions assets ............................................................... 295-385 superannuation fund, non-reversionary bonuses on policies of life assurance .............................................. 295-335 (table item 1) superannuation fund, regulated, income from a grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 .. 295-405 (table item 1) United Nations United Nations Service, income from .............................. 23AB venture capital eligible venture capital investments, gain or profit from realisation of................................................................... 51-54 eligible venture capital investments by ESVCLPs, income derived from..................................................... 51-52 venture capital equity, gain or profit from realisation of....................................................................................... 51-55 welfare Assistance for New Zealand non-protected special category visa holders for a disaster that occurred in Australia during the 2010-11 financial year............. 51-30 Disaster Income Recovery Subsidy for the floods that occurred in Australia during the period starting on 29 November 2010, or for Cyclone Yasi................... 51-30 maintenance payment........................................................ 51-30 and 51-50 thalidomide payment--ex-gratia payment..................... 51-30 thalidomide payment--payment by the Thalidomide Australia Fixed Trust..................................................... 51-30 see also social security or like payments Note: The following provisions of the Income Tax Assessment Act 1936 give rise to notional exempt income and not exempt income. For this reason the provisions do not appear in the lists of kinds of exempt income. The provisions are: paragraphs 384(1)(b) and 385(1)(b), subsection 402(2) and sections 403 and 404. Table of sections 11-50 Effect of this Subdivision 11-55 List of non-assessable non-exempt income provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 11.50 Effect of this Subdivision This Subdivision is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 11.55 List of non-assessable non-exempt income provisions The provisions set out in the list make amounts non-assessable non-exempt income. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. alienated personal services income associate, non-deductible payment or obligation to............ 85-20(3) entitlements to a share of net income that is personal services income already assessable to an individual............................................................................... 86-35(2) payments by personal services entity or associate of personal services income already assessable to an individual............................................................................... 86-35(1) personal services entity, amounts of personal services income assessable to an individual.................................. 86-30 bonds see securities capital gains tax small business retirement exemption, payments made directly or indirectly to CGT concession stakeholder so company or trust complies with section 152-325.......... 152-310 demutualisation of friendly society health or life insurers amounts related to issue, or transfer from lost policy holders trust, of demutualisation assets........................... 316-255 payments received directly, or from lost policy holders trust, in exchange for cancellation or variation of interests under the demutualisation.................................. 316-255 demutualisation of private health insurers market value of shares and rights at time of issue............... 315-310 payments received in exchange for cancellation or variation of interests under the demutualisation........... 315-310 disasters 2010-11 floods--recovery grants for primary producers .. 59-55 2010-11 floods--recovery grants for small businesses ...... 59-55 Cyclone Yasi--recovery grants for primary producers ...... 59-60 Cyclone Yasi--recovery grants for small businesses ......... 59-60 dividends demerger dividends.................................................................... 44(4) later dividend set off against amount taken to be dividend................................................................................. 109ZC(3), 109ZCA(4) employment early retirement scheme payment, tax free amount of ..... 83-170 employment termination payment ........................................ 82-10 82-65 82-70 foreign termination payment .................................................. 83-235 83-240 genuine redundancy payment, tax free amount of ............ 83-170 unused long service leave payment, pre-16/8/78 period .................................................................................... 83-80 see superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 financial arrangements gains related to non-assessable non-exempt income.......... 230-30 firearms surrender arrangements compensation under.................................................................. 59-10 first home saver accounts credits to and payments from.................................................. 345-50 tax paid by providers................................................................. 345-30 foreign aspects of income taxation attributed controlled foreign company income, amounts paid out of ............................................................................ 23AI attributed foreign investment fund income, amounts paid out of ..................................................................................... 23AK certain forex realisation gains.................................................. 775-25 dividend from a foreign country, non-portfolio................... 23AJ branch profits of Australian companies................................ 23AH distributions of conduit foreign income................................. 802-20 income derived by temporary residents................................. 768-910 interest paid by temporary residents....................................... 768-980 managed investment trust withholding tax, amount subject to .............................................................................. 840-815 superannuation fund, foreign, interest and dividend income of ............................................................................. 128B(3)(jb) withholding tax, dividend royalty or interest subject to...... 128D GST GST payable on a taxable supply........................................... 17-5(a) increasing adjustments.............................................................. 17-5(b) and (c) life insurance companies..................................................................... Subdivision 320-B mining withholding tax, payments to Aboriginals and distributing bodies subject to.................................................................. 59-15 mutual receipts amounts that would be mutual receipts but for prohibition on distributions to members............................................... 59-35 National Rental Affordability Scheme payments made, and non-cash benefits provided, by a State or Territory governmental body in relation to participation in the National Rental Affordability Scheme.................................................................................. 380-35 non-cash benefits fringe benefits............................................................................. 23L(1) notional sale and loan arrangement payments a notional seller receives or is entitled to receive................................................................. 240-40 luxury car leases, lease payments that the lessor receives or is entitled to receive......................................................... 242-40 deemed loan treatment for financial benefits provided for tax preferred use of asset................................................... 250-160 offshore banking units assessable OB income other than eligible fraction............... 121EG related entities amounts from, where deduction reduced for........................ 26-35(4) repayable amounts previously assessable amounts................................................ 59-30 rights to acquire shares or units market value of at time of issue.............................................. 59-40 securities securities acquired at a discount on or before 30 June 1982, amount received on sale or redemption of.......... 23J special bond, amount received on redemption of................ 23E small business assets income arising from CGT event, company or trust owned asset continuously for 15 years......................................... 152-110(2) superannuation benefits generally ...................................................................... Divisions 301 to 306 commutation of income stream, under 25 years ................ 303-5 death benefits ............................................................................ 302-60 302-65 302-70 302-140 departing Australia superannuation benefits ....................... 301-175 foreign superannuation funds, lump sum benefits ............. 305-60 305-65 305-70 member benefits ........................................................................ 301-10 301-15 301-30 301-225 release authorities, payments from ........................................ 304-15 roll-over superannuation benefits .......................................... 306-5 superannuation lump sum for recipient having terminal medical condition ............................................................... 303-10 unclaimed money payment .................................................... 306-20 tax bonus payments in accordance with the Tax Bonus for Working Australians Act (No. 2) 2009 ............................................ 59-45 tax loss transfers consideration received by loss company from income company, generally............................................................. 170-25(1) consideration received by loss company from income company, net capital loss................................................... 170-125(1) temporary residents see foreign aspects of income taxation trading stock disposal outside ordinary course of business, amounts received upon....................................................................... 70-90(2) trusts attributable income, amounts representing........................... 99B(2A) family trust distribution tax, amounts subject to................. 271-105(3) in Schedule 2F windfall amounts business franchise fees, refund of when invalid................... 59-20 State tax on Commonwealth place, refund of when invalid.................................................................................... 59-25 withholding taxes see foreign aspects of income taxation and mining INCOME TAX ASSESSMENT ACT 1997 - SECT 12.1 Effect of this Division This Division is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 12.5 List of provisions about deductions The provisions set out in the table contain rules about specific types of deduction. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. accrued leave transfer payments ....................................................................................................... 26-10 advance expenditure generally ...................................................................................... 82KZL to 82KZO avoidance arrangements ......................................................... 82KJ when deductible ......................................................................... 82KZM to 82KZN bad debts deduction reduced because of forgiveness of debt if debtor and creditor are companies under common ownership and agree on the reduction......................................................... 245-90 general ......................................................................................... 25-35, 63F companies .................................................................................. Subdivisions 165-C, 166-C and 175-C debt/equity swaps ..................................................................... 63E, 63F, 709-220 deduction of a debt that used to be owed to a member of a consolidated group or MEC group by an entity that used to be a member of the group ............................................ Subdivisions 709-D and 719-I money lenders, listed country branches, no deduction for .......................................................................................... 63D see also losses balancing adjustment see buildings, capital allowances, industrial property, R&D and tax exempt entities banks foreign banks, Australian branches of .................................. 160ZZVA to 160ZZZJ boats deferral of deductions .............................................................. 26-47 borrowing expenses ....................................................................................................... 25-25 bribes to foreign public officials ...................................................... 26-52 bribes to public officials ..................................................................... 26-53 buildings income producing buildings, capital allowances ................. Division 43 see also heritage conservation work capital allowances generally ...................................................................................... Division 40 balancing adjustments ............................................................. 40-285(2), 40-370 business related costs ................................................................ 40-880 electricity and telephone lines ................................................. 40-645 environmental protection activities ....................................... 40-755 exploration or prospecting ....................................................... 40-80(1), 40-730 in-house software ...................................................................... 40-335, 40-455 intellectual property .................................................................. Subdivisions 40-B and 40-I IRUs ............................................................................................. Subdivision 40-B landcare operations .................................................................. 40-630 low-value and software development pools ........................ Subdivision 40-E mining and quarrying ............................................................... Subdivision 40-H and Subdivision 40-I new business investment, additional deduction .................. Division 41 Petroleum Resource Rent Tax ................................................ 40-750 project pools ............................................................................... 40-830, 40-832 reducing deductions .................................................................. 40-25, 40-290 spectrum licences ...................................................................... Subdivision 40-B tax preferred use of asset.......................................................... Division 250 telecommunications site access rights ................................... Subdivision 40-B trees in carbon sink forests ...................................................... Subdivision 40-J water facilities and horticultural plants ................................. Subdivision 40-F capital gains no deduction for an amount that would otherwise be deductible only because a net capital gain is included in assessable income................................................................ 51AAA small business retirement exemption, no deduction for payments made directly or indirectly to CGT concession stakeholder so company or trust complies with section 152-325.................................................................... 152-310 see also foreign residents capital loss net capital loss, no deduction for ........................................... 102-10 net capital loss, transfer within company group .................. Subdivision 170-B car disposal see capital allowances car expenses generally ...................................................................................... Division 28 "cents per kilometre" method ................................................. Subdivision 28-C "log book" method ................................................................... Subdivisions 28-F and 28-G "one-third of actual expenses" method ................................ Subdivision 28-E substantiation of car expenses ............................................... Division 900 "12% of original value" method ............................................ Subdivision 28-D see also transport expenses car expenses of employee employee's car expenses where car provided by employer can be used for private purposes, no deduction for ............. 51AF carried interests carried interests, no deduction for........................................... 118-21 car parking employee's car parking expenses, no deduction for ........... 51AGA children's income generally ...................................................................................... 102AA to 102AH taxable income of a child, deductions taken into consideration in calculating .............................................. 102AD club fees club fees, no deduction for ...................................................... 26-45 see also subscriptions to associations Commonwealth places windfall tax ....................................................................................................... 26-17 companies, co-operative and mutual generally ...................................................................................... 117 to 121 distributions of assessable income ......................................... 120 companies, private excessive payments to shareholders directors and associates, reduced deduction .............................................................. 109 conservation covenants ........................................................................................................ Division 31 consolidated groups and MEC groups assets in relation to Division 230 financial arrangement.......................................................................... 701-61(4) rights to future income.............................................................. 716-405 controlled foreign companies generally ...................................................................................... 316 to 468 bad debts .................................................................................... 399A decline in value of depreciating assets .................................. 398 finance share dividends ........................................................... 394 taxes paid ................................................................................... 393 convertible notes see interest copyrights expenditure in obtaining registration ..................................... Subdivisions 40-B and 40-I currency exchange gains and losses see foreign exchange death of timber owner see timber debt interests certain returns in respect of debt interests.............................. 25-85 depreciation see capital allowances designs expenditure in obtaining or extending registration .............. Subdivisions 40-B and 40-I disposal of depreciating assets see capital allowances dividends dividends including LIC capital gain component ............... 115-280 franking credits, companies and foreign residents............... 207-95(2), 207-95(3), 220-405(3) franking credits, pooled development funds (PDFs) ........... 124ZM non-share equity interests, no deduction for return in respect of ............................................................................................ 26-26 unfranked non-portfolio dividends......................................... 46FA education expenses Higher Education Contribution Scheme, no deduction unless provided as fringe benefit .................................................. 26-20 limit on deduction ..................................................................... 82A election expenses Federal and State Parliament election expenses ................. 25-60, 25-70 local government election expenses, limited deduction for........................................................................................... 25-65, 25-70 electricity connections see capital allowances embezzlement see theft employees pensions, gratuities or retiring allowances for ex-employees ................................................................................................. 25-50 see also shares entertainment expenditure, no deduction for some ...................................... Division 32 meal entertainment, calculation of deductible amount ..... 51AEA to 51AEC environment see capital allowances excess contributions tax no deduction .............................................................................. 26-75 exploration and prospecting see capital allowances family no deduction for maintaining spouse or child....................... 26-40 farm management deposits see primary production film licensed investment companies (FLICs) see shares financial arrangements losses from................................................................................... 230-15(2) and (3) see also borrowing expenses, infrastructure borrowings, interest, leases and securities foreign exchange losses ............................................................................................ 775-30 foreign financial entities' Australian permanent establishments generally....................................................................................... Part IIIB thin capitalisation....................................................................... Subdivision 820-FB transfer of losses......................................................................... Subdivisions 170-A and 170-B forestry managed investment schemes payments under scheme........................................................... 394-10(1) franchise fees windfall tax ....................................................................................................... 26-15 freight freight for shipped goods ......................................................... 135A fringe benefits contributions for private component, no deduction for ..... 51AJ employee's car expenses where car provided by employer can be used for private purposes, no deduction for ............. 51AF employee's car parking expenses, no deduction for ........... 51AGA expense payment fringe benefits, reduced deduction ........ 51AH general insurance companies and companies that self insure claims paid.................................................................................. 321-25 and 321-95 increase in value of outstanding claims liability................... 321-15 and 321-85 increase in value of unearned premium reserve................... 321-55 gifts general ......................................................................................... Division 30 limit on deduction ..................................................................... 26-55 see also tax avoidance schemes horticultural plants see capital allowances higher education assistance 26-20 illegal activities 26-54 income equalisation deposits see primary production industrial property see intellectual property and R&D infrastructure borrowings generally ...................................................................................... 159GZZZZD to 159GZZZZH no deduction for ........................................................................ 159GZZZZE insurance with non-residents generally ...................................................................................... 141 to 148 insurance premiums, no deduction unless arrangement to pay tax .......................................................................................... 145 reinsurance, no deduction for resident carrying on insurance business in Australia for reinsurance premiums paid to a non-resident ......................................................................... 148 intellectual property see capital allowances interest convertible notes, interest on, generally ................................ 82L to 82T foreign residents, debt creation involving, generally ........... 159GZY to 159GZZF foreign residents, delayed deduction for interest paid to until withholding tax payable has been paid .......................... 26-25 life assurance premiums, interest etc. on loans to finance, no deduction for ....................................................................... 26-85 superannuation contributions, interest etc. on loans to finance, no deduction for .................................................. 26-80 underpayment or late payment of tax, interest for ............ 25-5 see also infrastructure borrowings international agreements see transfer pricing international profit shifting see transfer pricing investment company see shares IRUs see capital allowances land degradation see primary production lease document expenses ....................................................................................................... 25-20 lease, authority, licence, permit or quota expenditure to terminate........................................................... 25-110 leases finance leases and arrangements, use of property if end-user an exempt public body or use outside Australia to produce exempt income .................................................................... 159GE to 159GO leases of assets being put to tax preferred use...................... Division 250 leveraged arrangements, property used: • other than to produce assessable income; or • by a non-resident outside Australia; or • by a previous owner ....................................................................................................... 51AD payment for failure to comply with lease obligation to repair premises................................................................................. 25-15 leases of luxury cars accrual amounts......................................................................... 242-35 adjustment amounts (lessee)................................................... 242-70 adjustment amounts (lessor).................................................... 242-65 lease payments not deductible................................................ 242-55 payments to acquire car not deductible................................. 242-85 leave payments accrued leave transfer payments ........................................... 26-10 no deduction for leave payments until paid ........................ 26-10 leisure facilities no deduction for ........................................................................ 26-50 life insurance companies..................................................................... Subdivision 320-C limited recourse debt later payments............................................................................ 243-45 later payments (replacement debt)......................................... 243-50 loans see borrowing expenses, interest and securities losses foreign exchange ....................................................................... 775-30 profit-making undertaking or scheme ................................... 25-40 property sale ............................................................................... 25-40 traditional securities, loss on disposal or redemption of ............................................................................................ 70B see also tax losses managed investment trusts losses from carried interests...................................................... 275-200(4) management and investment company shares see shares membership of associations see subscriptions to associations mining see capital allowances misappropriation by employee or agent................................................................ 25-47 mortgage expenses of discharging a mortgage ...................................... 25-30 motor vehicles see car expenses and leases non-cash transactions non-cash business benefits ...................................................... 51AK non-cash consideration, money value deemed to have been paid or given ........................................................................ 21 non-commercial business activities deferral of non-commercial losses.......................................... Division 35 non-resident trust estates generally ...................................................................................... 102AAA to 102AAZG modified application of depreciation provisions ................. 102AAY modified application of trading stock provisions ................ 102AAZ no deductions allowable under Division 36 .......................... 102AAZC notional sales and loans adjustment amounts (lessee)................................................... 240-110(1) adjustment amounts (lessor).................................................... 240-105(3) arrangement payments, no deduction for............................. 240-55 notional interest.......................................................................... 240-50, 250-155 deemed loan treatment for financial benefits provided for tax preferred use of asset.......................................................... Subdivision 250-C payments to acquire property, no deduction for.................. 240-85 offshore banking units generally ...................................................................................... 121A to 121EL deductions for ............................................................................ 121EG partnerships foreign hybrid loss exposure adjustment................................................................................................. ............................. 830-50 losses, partner's share of partnership loss ............................. 90, 92 patents expenditure relating to grant of patents, etc. ........................ Subdivisions 40-B and 40-I penalties no deduction for penalties ....................................................... 26-5 personal services income alienated personal services income......................................... Subdivision 86-B general.......................................................................................... Division 85 political contributions and gifts denial of certain deductions..................................................... 26-22 deductions for individuals........................................................ Subdivision 30-DA pooled development funds (PDFs) ....................................................................................................... 124ZM to 124ZZD prepaid expenditure see advance expenditure primary production farm management deposits..................................................... Division 393 see also capital allowances and timber property arrangements relating to assets being put to tax preferred use................................................................................................. Division 250 arrangements relating to use of property if end-user an exempt public body or use outside Australia to produce exempt income .................................................................... 159GE to 159GO leveraged arrangements, property used: • other than to produce assessable income; or • by a non-resident outside Australia; or • by a previous owner ....................................................................................................... 51AD sale of property, profit or loss ................................................. 82(2) see also capital allowances and losses public trading trusts generally ...................................................................................... 102M to 102T qualifying securities see securities R&D Division 355 rates and land taxes premises used to produce mutual receipts............................. 25-75 regional headquarters (RHQs) ....................................................................................................... 82C to 82CE reimbursements expense payment fringe benefits, reduced deduction ........ 51AH reinsurance see insurance with non-residents related entities (including relatives) reduction of deduction for payment or liability to............... 26-35, 65(1B) and (1C) repairs general ......................................................................................... 25-10 repair covenants, payment for non-compliance with covenant to repair under lease ........................................................... 25-15 roads see timber royalties royalty, no deduction for royalty paid to a foreign resident until the withholding tax payable has been paid........... 26-25 scientific research see R&D securities qualifying securities .................................................................. 159GP to 159GZ substituted securities ................................................................. 23K traditional securities, loss on disposal or redemption of ............................................................................................ 70B shares buy-backs ................................................................................... 159GZZZJ to 159GZZZT cancellation of subsidiary's shares in holding company ... 159GZZZC to 159GZZZI employee share schemes, deduction for provider of ESS interests ................................................................................. Subdivision 83A-D small-medium enterprise, loss on disposal of shares in ...... 128TG to 128TL see also dividends and securities small-medium enterprises (SMEs) see shares Software see capital allowances spectrum licences see capital allowances State or Territory bodies (STBs) body ceasing to be STB, some deductions not allowed ..... 24AW to 24AYA subscriptions to associations ....................................................................................................... 25-55 substantiation work, travel and car expenses ................................................. Division 900 superannuation see insurance and annuity business and interest superannuation and related business generally ...................................................................................... Part 3-30 asset disposals ............................................................................ 295-85 death or disability benefits, deduction for future service element ................................................................................. 295-470 death or disability cover, premiums for ................................ 295-465 detriment payments .................................................................. 295-485 financial assistance levy .......................................................... 295-490(1) (table item 3) superannuation contributions surcharge no deduction .............................................................................. 26-60 superannuation--deductibility of contributions generally ...................................................................................... Division 290 contributions for employees etc. ............................................ Subdivision 290-B contributions to non-complying funds .................................. sections 290-10 and 290-75 limit on deduction ..................................................................... 26-55 no deduction under any other provision of the Act ............ section 290-10 personal contributions .............................................................. Subdivision 290-C superannuation guarantee charge no deduction for ........................................................................ 26-95 late contribution offset , no deduction for ............................. 290-95 superannuation supervisory levy late lodgment amount, no deduction for............................... 26-90 tax agent's fees see tax related expenses tax avoidance schemes companies, use of tax losses or deductions to avoid tax ... Division 175 diverted assessable income ..................................................... 121F to 121L dividend stripping....................................................................... 177E gifts .............................................................................................. 78A imputation, manipulation of.................................................... 207-150(2), 207-150(3) international profit shifting, transfer pricing ......................... 136AA to 136AF prepaid outgoings to avoid tax ............................................... 82KJ recouped expenditure ............................................................... 82KH to 82KL tax avoidance scheme, no deduction allowable where deduction the result of ....................................................... 177A to 177G trading stock ............................................................................... 70-20, 52A tax exempt entities treatment of losses and outgoings on becoming taxable .................................................................................. Schedule 2D tax losses bad debts, companies ............................................................... 165-120 change of ownership or control of a company generally ................................................................... Division 165 for earlier income years ......................................... Subdivision 165-A for income year of the change ............................. Subdivision 165-B earlier income years .................................................................. Division 36 life insurance companies.......................................................... Subdivision 320-D pooled development funds ...................................................... Subdivision 195-A transfer between companies in same wholly-owned group ..................................................................................... Subdivision 170-A tax preferred asset financing generally....................................................................................... Division 250 denial of capital allowance deductions in relation to asset being put to tax preferred use............................................ 250-145 reduction in capital allowance deductions in relation to asset being put to tax preferred use............................................ 250-150 tax related expenses ....................................................................................................... 25-5 telecommunications site access rights see capital allowances telephone lines see primary production termination payments surcharge no deduction .............................................................................. 26-65 theft by employee or agent................................................................ 25-45 thin capitalisation disallowing of deductions......................................................... Division 820 timber death of owner of land carrying trees, deduction of the part of land cost attributable to trees............................................ 70-120 disposal of land carrying trees, deduction of the part of land cost attributable to trees..................................................... 70-120 felling trees, deduction of cost of land attributable to trees felled or of cost of right to fell trees.................................. 70-120 see also capital allowances trading ships see capital allowancesn trading stock Commissioner may determine whether consideration paid for chose in action is reasonable ............................................ 52A excess of opening stock over closing value .......................... 70-35(3) expenditure deemed not to be of a capital nature .............. 70-25 prepayments, when stock becomes trading stock on hand ...................................................................................... 70-15 see also tax avoidance schemes and timber traditional securities see securities training guarantee training guarantee charge, no deduction for ........................ 51(7) transfer pricing generally ...................................................................................... 136AA to 136AF adjustments to deductions ...................................................... 136AF transport expenses incurred in travel between workplaces .................................. 25-100 travel expenses accompanying relatives, no deduction for some travel expenses ............................................................................... 26-30 see also substantiation trees in carbon sink forests see capital allowances trusts trust income, deductions considered in calculating ............. 95 to 102 unit trusts .................................................................................... 102D to 102L see also foreign residents, non-resident trust estates and public trading trusts uniforms non-compulsory uniforms ....................................................... Division 34 United Medical Protection Limited support payments ....................................................................................................... 25-105 uranium mining see mining water facilities see capital allowances work expenses see substantiation work in progress payment of a work in progress amount ................................ 25-95 INCOME TAX ASSESSMENT ACT 1997 - SECT 13.1A Effect of this Division This Division is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 13.1 List of tax offsets The provisions set out in the list allow you a tax offset. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Aboriginal study assistance see social security and other benefit payments annual leave see leave payments annuity see superannuation approved deposit funds (ADFs) see dividends averaging see primary production bonuses see life assurance child child care ..................................................................................... Subdivision 61-IA first child...................................................................................... Subdivision 61-I increased tax payable under Part III Division 6AA, unreasonable ................................................................................................. 102AH trust income ................................................................................ 100(2) child/housekeeper see dependants corporate unit trusts see dividends Cyclone Larry or Cyclone Monica income support payment see social security and other benefit payments defence force members serving overseas ....................................................... 79B dependants child of person keeping house for the person........................ 159J housekeeper, caring for child, invalid relative or disabled spouse ................................................................................................. 159L invalid relative, invalid spouse or carer spouse..................... 159J parents/parents in law .............................................................. 159J spouse .......................................................................................... 159J see also medical expenses dividends general.......................................................................................... 207-20(2), 207-45, 207-110(2)(c), 210-170(1) education expenses payment of.................................................................................. Subdivision 61-M employment termination employment termination payments ...................................... 82-10 82-70 see leave payments, superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 entrepreneurs' tax offset see small business entities Equine Workers Hardship Wage Supplement Payment see social security and other benefit payments exceptional circumstances relief see social security and other benefit payments farm help income support see social security and other benefit payments foreign income tax foreign income tax paid, tax offset for................................. Division 770 franking deficit tax liabilities to pay........................................................................... 205-70 franked dividends see dividends hardship see child housekeeper see dependants housing National Rental Affordability.................................................. Division 380 imputation see dividends and franking deficit tax inter-corporate dividends see dividends interest tax paid on by company ......................................................... 127 interim income support payment see social security and other benefit payments invalid relative see dependants leave payments unused annual leave payment ............................................... 83-15 unused long service leave payment ....................................... 83-85 see employment termination legal disability see trusts life assurance bonus, receipt of ........................................................................ 160AAB long service leave see leave payments low income earner aged beneficiary, trustee liable to be assessed for beneficiary's share of net income of trust estate .................................. 160AAAB aged person ................................................................................ 160AAAA general ......................................................................................... 159N lump sum income arrears receipt of ..................................................................................... 159ZRA, 159ZRB, Subdivision 61-L mature age workers ....................................................................................................... Subdivision 61-K medical expenses payment of ................................................................................. 159P non-resident beneficiary see trusts non-resident trust estate see trusts overseas defence force service see defence force parent/parent-in-law see dependants partnerships see dividends , housing and small business entities pension see social security and other benefit payments pooled superannuation trusts (PSTs) see dividends primary production averaging of income, trustees ................................................. 156 averaging of tax liability, individuals .................................... 392-35(2) exceptional circumstances relief payments see social security and other benefit payments farm help income support payments see social security and other benefit payments farm household support see social security and other benefit payments interim income support payments see social security and other benefit payments private health insurance ....................................................................................................... Subdivision 61-G public trading trust see dividends public unit trust see dividends R&D Division 355 residents of isolated areas see zone sickness benefits see social security and other benefit payments small business entities 25% entrepreneurs' tax offset................................................. Subdivision 61-J social security and other benefit payments Aboriginal study assistance scheme ...................................... 160AAA(3) children, assistance for isolated .............................................. 160AAA(3) Cyclone Larry or Cyclone Monica income support payment 160AAA(3) Equine Workers Hardship Wage Supplement Payment .... 160AAA(3) exceptional circumstances relief under the Farm Household Support Act 1992 ................................................................ 160AAA(3) farm help income support under the Farm Household Support Act 1992 ............................................................................... 160AAA(3) interim income support payment............................................ 160AAA(3) pension, social security pension and veteran's pension ..... 160AAA(2) textile, clothing and footwear allowance............................... 160AAA(3) unemployment, sickness and other benefit payments under the Social Security Act 1991.................................................... 160AAA(3) spouse see dependants superannuation generally ...................................................................................... Divisions 301 and 302 spouse contributions ................................................................. Subdivision 290-D death benefits ............................................................................ 302-75 302-85 302-145 member benefits ........................................................................ 301-20 301-25 301-35 301-40 301-95 301-100 301-105 301-115 TFN quoted to superannuation or RSA provider after no-TFN contributions tax paid ........................................................ 295-675 termination payments see employment termination, leave payments and superannuation trustee see dividends, low income earner and trusts trusts beneficiary in a foreign trust.................................................... 98B non-resident beneficiary........................................................... 98A(2)(a) trust income of beneficiary with legal disability................... 100(2) see also dividends , housing and small business entities United Nations forces salary, wages and allowances from service as a member of............................................................................................. 23AB(7) unemployment benefits see social security and other benefit payments unit trusts see dividends water urban water tax offset............................................................... Subdivision 402-W winding-up of non-resident trust estates see trusts zone residents of isolated areas ........................................................ 79A Guide to Division 15 INCOME TAX ASSESSMENT ACT 1997 - SECT 15.1 What this Division is about This Division sets out some items that are included in your assessable income. Remember that the general rules about assessable income in Division 6 apply to these items. Table of sections Operative provisions 15-2 Allowances and other things provided in respect of employment or services 15-3 Return to work payments 15-5 Accrued leave transfer payments 15-10 Bounties and subsidies 15-15 Profit-making undertaking or plan 15-20 Royalties 15-22 Payments made to members of a copyright collecting society 15-23 Payments of resale royalties by resale royalty collecting society 15-25 Amount received for lease obligation to repair 15-30 Insurance or indemnity for loss of assessable income 15-35 Interest on overpayments and early payments of tax 15-40 Providing mining, quarrying or prospecting information 15-45 Amounts paid under forestry agreements 15-46 Amounts paid under forestry managed investment schemes 15-50 Work in progress amounts 15-55 Certain amounts paid under funeral policy 15-60 Certain amounts paid under scholarship plan 15-65 Sugar industry exit grants 15-70 Reimbursed car expenses 15-75 Bonuses 15-80 Employer FHSA contributions etc. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 15.2 Allowances and other things provided in respect of employment or services (1) Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums * provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force). (2) This is so whether the things were * provided in money or in any other form. (3) However, the value of the following are not included in your assessable income under this section: (a) a * superannuation lump sum or an *employment termination payment; (b) an * unused annual leave payment or an *unused long service leave payment; (c) a * dividend or *non-share dividend; (d) an amount that is assessable as * ordinary income under section 6-5; (e) * ESS interests to which Subdivision 83A-B or 83A-C (about employee share schemes) applies. Note: Section 23L of the Income Tax Assessment Act 1936 provides that fringe benefits are non-assessable non-exempt income. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.3 Return to work payments Your assessable income includes an amount you receive under an * arrangement that an entity enters into for a purpose of inducing you to resume working for, or providing services to, any entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.5 Accrued leave transfer payments Your assessable income includes an * accrued leave transfer payment that you receive. To find out if the payment is deductible to the payer, see section 26-10. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.10 Bounties and subsidies Your assessable income includes a bounty or subsidy that: (a) you receive in relation to carrying on a * business; and (b) is not assessable as * ordinary income under section 6-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.15 Profit-making undertaking or plan (1) Your assessable income includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan. (2) This section does not apply to a profit that: (a) is assessable as * ordinary income under section 6-5; or (b) arises in respect of the sale of property acquired on or after 20 September 1985. Note: If you sell property you acquired before 20 September 1985 for profit-making by sale, your assessable income includes the profit: see section 25A of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.20 Royalties (1) Your assessable income includes an amount that you receive as or by way of royalty within the ordinary meaning of "royalty" (disregarding the definition of royalty in subsection 995-1(1)) if the amount is not assessable as * ordinary income under section 6-5. (2) Subsection (1) does not apply to an amount of a payment to which section 15-22 or 15-23 applies. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.22 Payments made to members of a copyright collecting society (1) This section, instead of Division 6 of Part III of the Income Tax Assessment Act 1936, applies to a payment that a * copyright collecting society, to which section 51-43 applies, makes to you as a * member of the society. (2) Your assessable income includes the amount of the payment, except to the extent that the payment represents an amount on which the directors of the society are or have been assessed, and are liable to pay * tax, under section 98, 99 or 99A of the Income Tax Assessment Act 1936. Note: Section 410-5 of this Act requires a copyright collecting society to give you a notice at the time of payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.23 Payments of resale royalties by resale royalty collecting society (1) This section, instead of Division 6 of Part III of the Income Tax Assessment Act 1936, applies to a payment that the * resale royalty collecting society makes to you under section 26 of the Resale Royalty Right for Visual Artists Act 2009. (2) Your assessable income includes the amount of the payment, except to the extent that the payment represents an amount on which the directors of the society are or have been assessed, and are liable to pay * tax, under section 98, 99 or 99A of the Income Tax Assessment Act 1936. Note: Section 410-50 of this Act requires the resale royalty collecting society to give you a notice at the time of payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.25 Amount received for lease obligation to repair Your assessable income includes an amount you receive from an entity if: (a) you receive it as a lessor or former lessor of premises; and (b) the entity pays you the amount for failing to comply with a lease obligation to make repairs to the premises; and (c) the entity uses or has used the premises for the * purpose of producing assessable income; and (d) the amount is not assessable as * ordinary income under section 6-5. Note: The entity can deduct the amount: see section 25-15. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.30 Insurance or indemnity for loss of assessable income Your assessable income includes an amount you receive by way of insurance or indemnity for the loss of an amount (the lost amount) if: (a) the lost amount would have been included in your assessable income; and (b) the amount you receive is not assessable as * ordinary income under section 6-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.35 Interest on overpayments and early payments of tax Your assessable income includes interest payable to you under the Taxation (Interest on Overpayments and Early Payments) Act 1983. The interest becomes assessable when it is paid to you or applied to discharge a liability you have to the Commonwealth. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.40 Providing mining, quarrying or prospecting information Your assessable income includes an amount you receive for providing * mining, quarrying or prospecting information to another entity if: (a) you continue to * hold the information; and (b) the amount you receive is not assessable as * ordinary income under section 6-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.45 Amounts paid under forestry agreements (1) Your assessable income includes an amount you receive under an agreement for the planting and tending of trees for felling if: (a) you are the manager of the agreement as mentioned in section 82KZMG of the Income Tax Assessment Act 1936; and (b) the amount satisfies, for the entity that paid it, the requirements of that section. The amount is included for the income year in which the entity can claim a deduction for the amount. (2) No part of an amount included under subsection (1) is included in your assessable income for a later income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.46 Amounts paid under forestry managed investment schemes (1) Your assessable income includes an amount you receive under a * forestry managed investment scheme if: (a) you are the * forestry manager of the scheme, or an * associate of the forestry manager; and (b) the entity that paid the amount can deduct or has deducted the amount under section 394-10 in relation to the scheme (disregarding subsection 394-10(5)). The amount is included for the income year for which the entity that paid the amount can or has claimed a deduction for it (disregarding subsection 394-10(5)). (2) No part of an amount included under subsection (1) is included in your assessable income for a later income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.50 Work in progress amounts Your assessable income includes a * work in progress amount that you receive. Note: To find out whether the amount is deductible to the payer, see section 25-95. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.55 Certain amounts paid under funeral policy (1) Your assessable income includes the amount of a benefit provided to you by a * life insurance company under a *funeral policy issued after 31 December 2002 to pay for the funeral of the insured person, reduced by: (a) the amount of the premium or premiums of the policy that is reasonably related to the benefit; and (b) the amount of the fees and charges included in the company's assessable income for any income year under paragraph 320-15(1)(k) that is reasonably related to the benefit. (2) This section does not apply if the benefit is included in your assessable income as: (a) * ordinary income under section 6-5; or (b) * statutory income under a section of this Act other than this section. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.60 Certain amounts paid under scholarship plan (1) Your assessable income includes the amount of a benefit provided to you, or on your behalf, by a * life insurance company under a * scholarship plan covered by subsection (2) or (3), reduced by the amount worked out under subsection (4), if: (a) the benefit is provided on or after 1 January 2003; and (b) you are nominated in the plan as a beneficiary whose education is to be helped by the benefit. (2) This subsection covers a * scholarship plan issued by the * life insurance company after 31 December 2002. (3) This subsection covers a * scholarship plan if: (a) the plan was issued by the * life insurance company before 1 January 2003; and (b) no amount received by the company on or after 1 January 2003 and attributable to the plan is * non-assessable non-exempt income of the company under paragraph 320-37(1)(d). (4) The amount of the reduction is the sum of: (a) the amount of the premium or premiums of the plan that is reasonably related to the benefit; and (b) the amount of the fees and charges included in the company's assessable income for any income year under paragraph 320-15(1)(k) that is reasonably related to the benefit. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.65 Sugar industry exit grants (1) Your assessable income includes the amount of a sugar industry exit grant that you receive under the program known as the Sugar Industry Reform Program if, as a condition of receiving the grant, you entered into an undertaking not to become the owner or operator of a sugar industry * enterprise within 5 years after receiving the grant. (2) Your assessable income also includes the amount of a sugar industry exit grant that you receive under that program if: (a) as a condition of receiving the grant, you entered into an undertaking not to become the owner or operator of any agricultural * enterprise within 5 years after receiving the grant; and (b) you become the owner or operator of an agricultural enterprise (except a sugar industry enterprise) within that period. (3) The amount is included for the income year in which you receive it. Note: You will be required to repay the grant if you re-enter the sugar industry within the 5 year period. If you repay the grant in an income year after the year in which you receive it, section 59-30 will exclude the grant from your assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.70 Reimbursed car expenses Your assessable income includes a reimbursement mentioned in section 22 of the Fringe Benefits Tax Assessment Act 1986 (about exempt car expense payment benefits) that, but for that section, would be a * fringe benefit *provided to you. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.75 Bonuses Your assessable income includes any amount you receive as or by way of bonus on a * life insurance policy, other than a reversionary bonus. Note: Reversionary bonuses are covered by section 6-5 of this Act if they are ordinary income and, if not, by section 26AH of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 15.80 Employer FHSA contributions etc. Your assessable income includes a contribution or expense payment benefit of a kind mentioned in paragraph (hd) of the definition of fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 that, but for that paragraph, would be a * fringe benefit *provided to you. Guide to Division 17 INCOME TAX ASSESSMENT ACT 1997 - SECT 17.1 What this Division is about This Division sets out the effect of the GST in working out assessable income. Generally speaking, GST, input tax credits and adjustments under the GST Act are disregarded. Table of sections 17-5 GST and increasing adjustments 17-10 Certain decreasing adjustments 17-15 Elements in calculation of amounts 17-20 GST groups and GST joint ventures 17-30 Special credits because of indirect tax transition 17-35 Certain sections not to apply to certain assets or expenditure INCOME TAX ASSESSMENT ACT 1997 - SECT 17.5 GST and increasing adjustments An amount is not assessable income, and is not * exempt income, to the extent that it includes an amount relating to: (a) * GST payable on a *taxable supply; or (b) an * increasing adjustment that relates to a *supply; or (c) an * increasing adjustment that: (i) relates to an * acquisition; and (ii) arises in circumstances that also give rise to a * recoupment that is included in assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 17.10 Certain decreasing adjustments (1) An amount of a * decreasing adjustment that arises under Division 129 or 132 of the * GST Act is assessable income, unless the entity that has the adjustment is an * exempt entity. (2) However, the amount is not assessable income to the extent that, because it becomes a component of a * net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits). INCOME TAX ASSESSMENT ACT 1997 - SECT 17.15 Elements in calculation of amounts In calculating an amount that may be included in assessable income: (a) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any * GST payable on a * taxable supply related to the amount received or receivable, or any * increasing adjustment related to that amount; and (b) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any * input tax credit for an * acquisition related to the amount paid or payable, or any * decreasing adjustment related to that amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 17.20 GST groups and GST joint ventures (1) A * member of a *GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the * GST Act (other than paragraph 48-40(2)(a) and subsection 48-40(3)) did not apply to that member. (2) A * participant in a *GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the * GST Act (other than subsections 51-30(2) and (3)) did not apply to that participant. INCOME TAX ASSESSMENT ACT 1997 - SECT 17.30 Special credits because of indirect tax transition A special credit under section 19A of the A New Tax System (Goods and Services Tax Transition) Act 1999 is assessable income at the time it is attributed to a * tax period (for a credit under section 19A). INCOME TAX ASSESSMENT ACT 1997 - SECT 17.35 Certain sections not to apply to certain assets or expenditure Sections 17-5, 17-10 and 17-15 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or Division 328. Note: See instead Subdivision 27-B. Table of Subdivisions Guide to Division 20 20-A Insurance, indemnity or other recoupment for deductible expenses 20-B Disposal of a car for which lease payments have been deducted Guide to Division 20 INCOME TAX ASSESSMENT ACT 1997 - SECT 20.1 What this Division is about This Division includes amounts in your assessable income to reverse the effect of certain kinds of deductions. Table of sections 20-5 Other provisions that reverse the effect of deductions INCOME TAX ASSESSMENT ACT 1997 - SECT 20.5 Other provisions that reverse the effect of deductions The table lists other provisions that reverse the effect of certain kinds of deductions. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Provisions that adjust your tax position in respect of deductions Item In this situation: See: 1 A balancing adjustment for a depreciating asset is included in your assessable income. 40-285(1) and 40-445(2) 2 An amount you receive by way of insurance or indemnity for a loss of trading stock is included in your assessable income. 70-115 2A Limited recourse debt that was used to finance expenditure deductible under a capital allowance (or on property for which you have deducted or can deduct amounts under a capital allowance) terminates: an amount is included in your assessable income 243-40 3 Because of: • petroleum resource rent tax; or • an instalment of petroleum resource rent tax; that you have deducted or can deduct, an amount is refunded, credited, paid or applied: the amount is included in your assessable income. 40-750(3) 4 You receive a fringe benefit by way of reimbursement or payment of a loss or outgoing you incurred: your deduction for the loss or outgoing is reduced. 51AH 7 You receive an amount as recoupment for your local governing body election expenses: an amount is included in your assessable income. 74A(4) 8 You receive superannuation benefits as a result of someone's deductible contributions: the benefits are included in your assessable income. 290-100 9 An R&D entity receives or becomes entitled to receive an amount: • for, or relating to, the results of R&D activities; or • attributable to it incurring expenditure on R&D activities or to its use of a depreciating asset for the purpose of conducting R&D activities; and the entity is entitled under Division 355 to a tax offset relating to those R&D activities. The amount is included in its assessable income. 355-410 10 You receive a recoupment from government relating to R&D activities for which entitlements to tax offsets under Division 355 arise. Extra income tax is payable on the recoupment. Subdivision 355-G Guide to Subdivision 20-A INCOME TAX ASSESSMENT ACT 1997 - SECT 20.10 What this Subdivision is about Recoupment of expenses you incurred and can deduct Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if: it is for a deductible expense; and it is not otherwise assessable income. Recoupment of expenses you did not incur but can deduct Your assessable income may include an amount that another entity receives by way of insurance, indemnity or other recoupment if: it is for an expense that you can deduct; and it is not otherwise your assessable income. Table of sections 20-15 How to use this Subdivision What is an assessable recoupment? 20-20 Assessable recoupments 20-25 What is recoupment? 20-30 Tables of deductions for which recoupments are assessable How much is included in your assessable income? 20-35 If the expense is deductible in a single income year 20-40 If the expense is deductible over 2 or more income years 20-45 Effect of balancing charge 20-50 If the expense is only partially deductible 20-55 Meaning of previous recoupment law What if you can deduct a loss or outgoing incurred by another entity? 20-60 If you are the only entity that can deduct an amount for the loss or outgoing 20-65 If 2 or more entities can deduct amounts for the loss or outgoing INCOME TAX ASSESSMENT ACT 1997 - SECT 20.15 How to use this Subdivision If you incurred the deductible loss or outgoing (1) First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision. (2) If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year. If another entity incurred a loss or outgoing you can deduct (3) Sections 20-60 and 20-65 tell you how to apply this Subdivision. What is an assessable recoupment? INCOME TAX ASSESSMENT ACT 1997 - SECT 20.20 Assessable recoupments Exclusion (1) An amount is not an assessable recoupment to the extent that it is * ordinary income, or it is *statutory income because of a provision outside this Subdivision. Insurance or indemnity (2) An amount you have received as * recoupment of a loss or outgoing is an assessable recoupment if: (a) you received the amount by way of insurance or indemnity; and (b) you can deduct an amount for the loss or outgoing for the * current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act. Other recoupment (3) An amount you have received as * recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if: (a) you can deduct an amount for the loss or outgoing for the * current year; or (b) you have deducted or can deduct an amount for the loss or outgoing for an earlier income year; under a provision listed in section 20-30. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.25 What is recoupment? General (1) Recoupment of a loss or outgoing includes: (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and (b) a grant in respect of the loss or outgoing. Amount paid for you (2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing. Remission of general interest charge or shortfall interest charge (2A) If: (a) you have incurred expenditure that consists of * general interest charge or * shortfall interest charge; and (b) the Commissioner remits any of that charge; then you are taken to receive the remitted amount as recoupment of that expenditure. Amount for disposing of right to recoupment (3) If you dispose of your right to receive an amount as * recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.) Amount received that is recoupment to an unspecified extent (4) If you receive an amount that is, to an unspecified extent, * recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable. Balancing adjustments not covered (5) If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the * termination value of the property is an amount you receive as recoupment of the loss or outgoing. Note: The termination value is usually the amount you receive because of disposal, loss or destruction of the property. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.30 Tables of deductions for which recoupments are assessable (1) This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable. Note: References are to section numbers except where otherwise indicated. Provisions of the Income Tax Assessment Act 1997 Item Provision Description of expense 1.1 8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad) bad debts 1.2 8-1 (so far as it allows you to deduct rates or taxes) rates or taxes 1.3 25-5 tax-related expenses 1.4 25-35 bad debts 1.5 25-45 embezzlement or larceny by an employee 1.5A 25-47 misappropriation by an employee or agent 1.6 25-60 election expenses, Commonwealth and State elections 1.6A 25-65 election expenses, local governing body 1.7 25-75 rates and land taxes on premises used to produce mutual receipts 1.8 The former 25-80 upgrading assets to meet GST obligations etc. 1.8A 25-95 work in progress amount 1.8B item 7 of the table in section 30-15 contributions relating to fund-raising events 1.8C item 8 of the table in section 30-15 contributions relating to fund-raising auctions 1.9 Division 40 capital allowances 1.10 The former Division 42 (as it applied to * software because of the former Subdivision 46-B) expenditure on software 1.11 The former Subdivision 46-C expenditure on software 1.12 The former Subdivision 46-D expenditure on software, pooled 1.13 The former Division 42 (as it applied to * IRUs because of Division 44) expenditure on IRUs 1.14 The former 330-15 exploration or prospecting expenditure 1.15 The former 330-80 allowable capital expenditure relating to mining or quarrying 1.16 The former 330-350 petroleum resource rent tax 1.17 The former 330-370 transport capital expenditure relating to mining or quarrying 1.18 The former 330-435 rehabilitation expenditure relating to mining or quarrying 1.19 The former 330-485 balancing adjustment deduction for expenditure relating to mining or quarrying 1.19A Division 355 R&D 1.20 The former Subdivisions 380-A and 380-C capital expenditure incurred in obtaining a spectrum licence 1.21 The former Subdivision 387-A landcare operations expenditure 1.22 The former Subdivision 387-B expenditure on facilities to conserve or convey water 1.23 The former Subdivision 387-D grapevine establishment expenditure 1.24 The former Subdivision 387-C horticultural plant establishment expenditure 1.25 The former Subdivision 387-E mains electricity connection expenditure 1.26 The former Subdivision 400-A expenditure on environmental impact assessment 1.27 The former Subdivision 400-B expenditure on environmental protection activities 1.28 775-30 forex realisation loss (2) This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable. Note: References are to section numbers except where otherwise indicated. Provisions of the Income Tax Assessment Act 1936 Item Provision Description of expense 2.1 Former 51(1) (so far as it allowed you to deduct a bad debt, or part of a debt that is bad) bad debts 2.2 Former 51(1) (so far as it allowed you to deduct rates or taxes) rates or taxes 2.3 63 bad debts 2.4 Former 69 tax-related expenses 2.5 Former 70A(3) mains electricity connection expenditure 2.6 Former 71 embezzlement or larceny by an employee 2.7 Former 72 rates and land tax 2.7A Former 72A a payment of petroleum resource rent tax, or an instalment of petroleum resource rent tax, or a credit under paragraph 99(d) of the Petroleum Resource Rent Tax Assessment Act 1987 in respect of a payment of such an instalment 2.8 Former 73B, 73BA or 73BH research and development activity expenditure 2.9 Former 74 election expenses, Commonwealth and State elections 2.9A Former 74A election expenses, local governing body 2.10 Former 75AA(1) or (6) grape vine establishment expenditure 2.11 Former 75B(2) or (3A) water conservation or conveyance expenditure 2.12 Former 75D(2) land degradation prevention expenditure 2.13 Former 82AB development allowance expenditure 2.14 Former 82BB environmental impact study expenditure 2.15 Former 82BK environmental protection expenditure 2.17 Former Division 10 of Part III mining and quarrying expenditure 2.18 Former Division 10AAA of Part III expenditure on transport of minerals and quarry materials 2.19 Former Division 10AA of Part III expenditure on prospecting and mining for petroleum 2.20 Former 124BA expenditure on rehabilitating mining, quarrying and petroleum sites 2.21 Former 124ZZF horticultural plant establishment expenditure (effective life of the plant less than 3 years) 2.22 Former 124ZZG horticultural plant establishment expenditure (effective life of the plant more than 3 years) 2.23 Former 628 drought mitigation property expenditure by a primary producer 2.24 Former 636 drought mitigation property expenditure by a leasing company How much is included in your assessable income? INCOME TAX ASSESSMENT ACT 1997 - SECT 20.35 If the expense is deductible in a single income year (1) Your assessable income includes an * assessable recoupment of a loss or outgoing if: (a) you can deduct the whole of the loss or outgoing for the * current year; or (b) you have deducted or can deduct the whole of the loss or outgoing for an earlier income year. Note 1: The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45. Note 2: Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40. Note 3: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50. Total assessed not to exceed the loss or outgoing (2) The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing. Recoupment received before income year of the deduction (3) If: (a) you can deduct the whole of a loss or outgoing for the * current year; and (b) before the current year you received an * assessable recoupment of the loss or outgoing; your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.40 If the expense is deductible over 2 or more income years (1) This section includes an amount in your assessable income if: (a) you receive in the * current year an *assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or (b) you received in an earlier income year an * assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a * previous recoupment law). (This section applies even if the recoupment was received before the first of those income years.) Note: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50. (2) Work out as follows how much is included in your assessable income for the * current year because of one or more *assessable recoupments of the loss or outgoing. Note: The method statement ensures that assessable recoupments are included: * only so far as they have not already been included for an earlier income year; and * only to the extent of your total deductions to date for the loss or outgoing. Method statement Step 1. Add up all the * assessable recoupments of the loss or outgoing that you have received (in the * current year or earlier). The result is the total assessable recoupment. Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a * previous recoupment law. The result is the recoupment already assessed. (If no amount was included, the recoupment already assessed is nil.) Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment. Step 4. Add up each amount that you can deduct for the loss or outgoing for the * current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing. Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45. Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions. Step 6. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead. Example: At the start of the 2002-03 income year, a company incurs $100,000 to start to hold a depreciating asset. The company uses the prime cost method, and the effective life is 10 years. $10,000 is deductible for the 2002-03 income year and for each of the following 9 income years under section 40-25. In the 2002-03 income year, the company receives $20,000 as recoupment. How much is assessable for the 2002-03 income year? Applying the method statement: After step 1: the total assessable recoupment is $20,000. After step 2: the recoupment already assessed is nil. After step 3: the unassessed recoupment is: total assessable recoupment minus recoupment already assessed, i.e. $20,000 minus 0 = $20,000. After step 4: the total deductions for the loss or outgoing are $10,000. After step 5: the outstanding deductions are: total deductions for the loss or outgoing minus recoupment already assessed, i.e. $10,000 minus 0 = $10,000. After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $10,000. Applying the method statement to the 2003-04 income year: a further $10,000 is included in the company's assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.45 Effect of balancing charge (1) This section may affect the operation of section 20-35 or 20-40 (as appropriate) if: (a) a balancing adjustment is required for the * current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and (b) an amount (the balancing charge) is included in your assessable income for the * current year (or for the earlier income year) because of the balancing adjustment. To find out about balancing adjustments, see Subdivision 40-D. Effect on section 20-35 (2) In applying section 20-35, treat each of the following as reduced by the balancing charge: (a) the amount of the loss or outgoing; (b) the total of what you can deduct for the loss or outgoing for the * current year, or have deducted or can deduct for an earlier income year. Effect on section 20-40 (3) In applying the method statement in subsection 20-40(2), reduce the total deductions for the loss or outgoing by the balancing charge. Example: Continuing the example in subsection 20-40(2): at the start of the 2005-06 income year, the company: * receives a further $10,000 as recoupment; and * sells the depreciating asset for $75,000. As a result of the sale, a balancing adjustment of $5,000 is included under section 40-285 in the company's assessable income for that income year. How much of the recoupment amount received in the 2005-06 income year is assessable for that income year? Applying the method statement in subsection 20-40(2): After step 1: the total assessable recoupment is $30,000 (received during 2002-03 and 2005-06). After step 2: the recoupment already assessed is $20,000 (for 2002-03 and 2003-04). After step 3: the unassessed recoupment is: total assessable recoupment minus recoupment already assessed, i.e. $30,000 minus $20,000 = $10,000. After step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 2002-03, 2004-04 and 2004-05), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), i.e. $25,000. After step 5: the outstanding deductions are: total deductions for the loss or outgoing minus recoupment already assessed, i.e. $25,000 minus $20,000 = $5,000. After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $5,000. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.50 If the expense is only partially deductible (1) This section extends the operation of section 20-35 or 20-40 (as appropriate) to a case where the total of what you can deduct under a provision (the deduction provision) for a loss or outgoing is limited to a proportion of the loss or outgoing. (2) If you receive an * assessable recoupment of the loss or outgoing, section 20-35 or 20-40 applies as if: (a) you had incurred only that proportion of the loss or outgoing, but could deduct the whole of that proportion under the deduction provision; and (b) you had received only that proportion of the recoupment. Example: You incur expenditure of $500. A provision listed in section 20-30 entitles you to deduct 10% of the expenditure ($50) over 5 years. This means you can deduct $10 in each of the 5 years. You recoup $300 of the expenditure. This section treats you as receiving only 10% of the recoupment. Therefore, $30 is dealt with by section 20-40. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.55 Meaning of previous recoupment law (1) Previous recoupment law means a provision of the Income Tax Assessment Act 1936 listed in this table. Previous recoupment law Item Provision What kind of expense the provision relates to: 1 former 26(j) (so far as it relates to an amount received for or in respect of a loss or outgoing that is a deduction) a loss or outgoing that is a deduction 2 former 26(k) embezzlement or larceny by an employee 3 former 63(3) bad debts 4 former 69(8) tax-related expenses 5 former 70A(5) mains electricity connection expenditure 6 former 72(2) (so far as it relates to a refund of an amount you have deducted or can deduct) rates or taxes 6A former 72A(4)(a) and (aa) petroleum resource rent tax 7 former 74(2) election expenses, Commonwealth and State elections (2) Former section 330-350 of this Act is also a previous recoupment law. What if you can deduct a loss or outgoing incurred by another entity? INCOME TAX ASSESSMENT ACT 1997 - SECT 20.60 If you are the only entity that can deduct an amount for the loss or outgoing This Subdivision applies in a different way if: (a) an entity (other than you) incurs a loss or outgoing; and (b) you can deduct the whole of the loss or outgoing for an income year, or you can deduct amounts for the loss or outgoing over 2 or more income years; and (c) no other entity can deduct an amount for the loss or outgoing; and (d) the entity that incurred the loss or outgoing receives one or more amounts as * recoupment of the loss or outgoing. This Subdivision (except this section and section 20-65) applies as if you had incurred the loss or outgoing and had also received the * recoupment. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.65 If 2 or more entities can deduct amounts for the loss or outgoing (1) Special rules apply if: (a) an entity (the first entity) incurs a loss or outgoing; and (b) 2 or more entities (the deducting entities, which may include the first entity) have deducted or can deduct amounts for the loss or outgoing (whether for the same income year or for different income years); and (c) the first entity receives one or more amounts as * recoupment of the loss or outgoing. (2) This Subdivision (except this section and section 20-60) applies as if the first entity and the deducting entities together constituted a single entity (the notional entity) that had: (a) incurred the loss or outgoing; and (b) received the amount or amounts as * recoupment; and (c) included in its assessable income any amount included in the assessable income of any of the deducting entities under a * previous recoupment law or this Subdivision (except this section). (3) If because of subsection (2) the notional entity's assessable income for an income year (the assessment year) would include an amount under this Subdivision (the assessable amount), the amount reverses in the assessment year the deductions for the loss or outgoing, in accordance with the rules in subsection (5). (4) The assessable income of each deducting entity for the assessment year includes the total amounts (if any) by which that entity's actual deductions for the loss or outgoing are reversed in that income year. (5) Deductions for the loss or outgoing are reversed in the assessment year as follows: (a) the amounts by which deductions are reversed total the assessable amount (unless all the deductions have been reversed); (b) a deduction for an income year is not reversed until all deductions for earlier income years have been reversed; (c) a deduction is not reversed in the assessment year to the extent that it has already been reversed in an earlier year; (d) if each of 2 or more entities can deduct an amount for the loss or outgoing for the same income year, those deductions are reversed in the assessment year by amounts proportionate to the amounts of the deductions. Guide to Subdivision 20-B INCOME TAX ASSESSMENT ACT 1997 - SECT 20.100 What this Subdivision is about This Subdivision reverses the effect of deductions for lease payments for a car leased to you (or to your associate), but only if you make a profit by disposing of the car after acquiring it from the lessor. The smallest of these amounts is included in your assessable income: your profit on the disposal; the total deductible lease payments for the period of the lease; the total amounts you could have deducted for the car's decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income. Table of sections 20-105 Map of this Subdivision The usual case 20-110 Disposal of a leased car for profit 20-115 Working out the profit on the disposal 20-120 Meaning of notional depreciation The associate case 20-125 Disposal of a leased car for profit Successive leases 20-130 Successive leases Previous disposals of the car 20-135 No amount included if earlier disposal for market value 20-140 Reducing the amount to be included if there has been an earlier disposal Miscellaneous rules 20-145 No amount included if you inherited the car 20-150 Reducing the amount to be included if another provision requires you to include an amount for the disposal 20-155 Exception for particular cars taken on hire 20-157 Exception for small business entities Disposals of interests in a car: special rules apply 20-160 Disposal of an interest in a car INCOME TAX ASSESSMENT ACT 1997 - SECT 20.105 Map of this Subdivision The usual case INCOME TAX ASSESSMENT ACT 1997 - SECT 20.110 Disposal of a leased car for profit (1) Your assessable income includes the * profit you make on disposing of a *car if: (a) the car was designed mainly for carrying passengers; and (b) the car was leased to you and has been leased to no-one else; and (c) you or another entity can deduct for the income year any of the lease payments paid or payable by you, or have deducted or can deduct any of them for an earlier income year, under this Act; and (d) you acquired the car from the lessor. Note 1: Even if subsection (1) does not apply, an amount may still be included in your assessable income: * under section 20-125 (which deals with more complicated cases that may involve your associate); or * if you disposed of an interest in a car (rather than the car itself): see section 20-160. Note 2: In some cases you do not include an amount in your assessable income: * if there has been an earlier disposal of the car for market value: see section 20-135; or * if you inherited the car: see section 20-145; or * if the car was let on hire in the circumstances set out in section 20-155. (2) However, the amount included cannot exceed the smaller of these limits: (a) the total lease payments for the lease that you or another entity have deducted or can deduct under this Act for an income year; (b) the amount of * notional depreciation for the lease period. Note 1: If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130. Note 2: In some cases you reduce the amount to be included: * if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or * if another provision requires you to include an amount because of the disposal: see section 20-150. (3) You increase those limits if you have previously leased the * car from the same lessor, or from an *associate of that lessor. You increase the first limit by the total lease payments for each previous lease of that kind that you or another entity have deducted or can deduct under this Act for an income year. You increase the second limit by the amount of * notional depreciation for the period of each previous lease of that kind. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.115 Working out the profit on the disposal (1) The profit on the disposal is the amount by which the * consideration receivable for the disposal exceeds: * the amount it cost you to acquire the *car; plus: * any capital expenditure you incurred on the car after acquiring it. (2) The consideration receivable is worked out using this table: Consideration receivable for the disposal of the car Item In this situation: the consideration receivable is: 1 you sell the * car for an amount specific to it the proceeds of the sale, less the expenses of the sale 2 you sell the * car with other property without a specific amount being allocated to it the part of the total proceeds of the sale that is reasonably attributable to the car less the part of the reasonably attributable expenses of the sale 3 you trade the * car in and buy another car the value of the trade-in, plus any other consideration you receive 4 you sell the * car and another entity buys another car the amount by which the cost of the other car is reduced by the sale, plus any other consideration you receive 5 you dispose of the * car to an insurer because it is lost or destroyed the amount or value received or receivable under the insurance policy (3) However, if the disposal of the * car is a *taxable supply, the consideration receivable does not include an amount equal to the * GST payable on the supply. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.120 Meaning of notional depreciation This is how to work out the notional depreciation for a lease period: Method statement Step 1. Compare: • the * car's *cost to the lessor for the purposes of Subdivision 40-C (which is about working out the cost of * depreciating assets); with: • the car's * termination value for the purposes of section 40-300 when the lessor disposed of it. Step 2. If the car's cost exceeds the car's termination value, multiply the excess by: • the number of days in the lease period; divided by: • the number of days the lessor owned the car. Step 3. The result is the notional depreciation for the lease period. Step 4. If the car's cost does not exceed the car's termination value, the notional depreciation for the lease period is zero. Note 1: The notional depreciation for the lease period represents: * the amount you could have deducted for the car's decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income for that period; adjusted by: * the balancing adjustment you would have made if you had disposed of the car at the end of that period. Note 2: The car's cost to the lessor is worked out differently if the lessor acquired it in the 1996-97 income year or an earlier income year: see section 20-105 of the Income Tax (Transitional Provisions) Act 1997. Note 3: The car's termination value is worked out differently if the lessor disposed of it in the 1996-97 income year or an earlier income year: see section 20-110 of the Income Tax (Transitional Provisions) Act 1997. The associate case INCOME TAX ASSESSMENT ACT 1997 - SECT 20.125 Disposal of a leased car for profit (1) Your assessable income includes the * profit you make on disposing of a * car if: (a) section 20-110 does not include an amount in your assessable income because of the disposal; and (b) the car was designed mainly for carrying passengers; and (c) the car was leased to you or your * associate; and (d) you, your associate or another entity can deduct for the income year any of the lease payments paid or payable by the lessee, or have deducted or can deduct any of them for an earlier income year, under this Act; and (e) either: (i) you, your associate, or entities including you or your associate, acquired the car from the lessor; or (ii) another entity acquired the car from the lessor under an * arrangement that enabled you or your associate to acquire the car. Note 1: Even if subsection (1) does not apply, an amount may be included in your assessable income if you disposed of an interest in a car (rather than the car itself): see section 20-160. Note 2: In some cases you do not include an amount in your assessable income: * if there has been an earlier disposal of the car for market value: see section 20-135; or * if you inherited the car: see section 20-145; or * if the car was let on hire in the circumstances set out in section 20-155. (2) However, the amount included cannot exceed the smallest of these limits: (a) the total lease payments for the lease that you, your * associate or another entity have deducted or can deduct under this Act for an income year; (b) the amount of * notional depreciation for the lease period; (c) if an entity other than you, or if entities including you, acquired the * car from the lessor--the amount by which the *consideration receivable for the disposal of the car by you exceeds the total of: (i) the car's cost to that entity, or those entities; and (ii) any capital expenditure that entity, or any of those entities, incurred on the car after that acquisition and before you acquired it. Note 1: If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130. Note 2: In some cases you reduce the amount to be included: * if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or * if another provision requires you to include an amount because of the disposal: see section 20-150. Example: Your associate leases a car for 5 years and then acquires it from the lessor for $4,000. Your associate sells it to you for $3,000. You sell it for $10,000. Your profit is $10,000 (the consideration receivable) less $3,000 (the car's cost to you) = $7,000. The first 2 limits on the amount to be included in your assessable income are $9,000 (total deductible lease payments for the lease) and $8,000 (notional depreciation for the lease period). Since your associate acquired the car from the lessor, the third limit is $10,000 (the consideration receivable by you) less $4,000 (the car's cost to the associate) = $6,000. The amount you include in your assessable income cannot exceed the smallest of the limits. So, you do not include your profit of $7,000. Instead, you include $6,000 (the smallest of the limits). (3) You increase the first 2 limits if you, or your associate, have previously leased the * car from the same lessor, or from an associate of that lessor. You increase the first limit by the total lease payments for each previous lease of that kind that you, your * associate or another entity have deducted or can deduct under this Act for an income year. You increase the second limit by the amount of * notional depreciation for the period of each previous lease of that kind. Successive leases INCOME TAX ASSESSMENT ACT 1997 - SECT 20.130 Successive leases If, because of 2 or more leases of the * car, there are different amounts that could be included in your assessable income because of the disposal, only the largest of those amounts is included. Previous disposals of the car INCOME TAX ASSESSMENT ACT 1997 - SECT 20.135 No amount included if earlier disposal for market value You do not include an amount in your assessable income because of the disposal if, after the lessor disposed of the * car and before you disposed of it, an entity other than you disposed of the car and: (a) the * consideration receivable for that disposal was at least the * market value of the car at the time of that disposal; or (b) because of that disposal, that market value was included, or an amount worked out using that market value was included, in the entity's assessable income under this Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.140 Reducing the amount to be included if there has been an earlier disposal Each limit on the amount to be included in your assessable income because of your disposal of the * car is reduced if, after the lease period began and before your disposal, the car, or an interest in it, was disposed of in one of these situations: Reducing each limit on the amount to be included Item In this situation: reduce each limit by: 1 Section 20-110 or 20-125 included an amount in your assessable income in respect of such an earlier disposal by you that amount 2 Section 20-110 or 20-125 included an amount in another entity's assessable income in respect of such an earlier disposal by the other entity that amount 3 Section 20-110 or 20-125 would have included an amount in your assessable income in respect of such an earlier disposal by you but for the operation of section 20-145 that amount 4 Section 20-110 or 20-125 would have included an amount in another entity's assessable income in respect of such an earlier disposal by the other entity but for the operation of section 20-145 that amount 5 Section 20-150 reduced the amount to be included in your assessable income in respect of such an earlier disposal by you the amount of the reduction 6 Section 20-150 reduced the amount to be included in another entity's assessable income in respect of such an earlier disposal by the other entity the amount of the reduction Examples: Your associate leases a car for 5 years and then acquires it. Your associate disposes of it to you and section 20-110 includes $500 in your associate's assessable income. You later dispose of the car. In working out the amount to include in your assessable income for your disposal, you can reduce each limit in subsection 20-125(2) by $500 because the disposal by your associate occurred after the lease period began. Contrast this case: You lease a car for 5 years and then acquire it. You dispose of it to another entity and section 20-110 includes $1,000 in your assessable income. You lease the car from that entity for 2 years and then acquire it. You later dispose of it. In working out the amount to include in your assessable income in respect of the second lease, you cannot reduce each limit in subsection 20-110(2) by $1,000 because the first disposal did not occur after the start of that lease. Note: If the earlier disposal occurred in the 1996-97 income year or an earlier income year, each limit may be able to be reduced by a further amount: see section 20-115 of the Income Tax (Transitional Provisions) Act 1997. Miscellaneous rules INCOME TAX ASSESSMENT ACT 1997 - SECT 20.145 No amount included if you inherited the car You do not include an amount in your assessable income because of the disposal if you inherited the * car. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.150 Reducing the amount to be included if another provision requires you to include an amount for the disposal The amount to be included in your assessable income because of the disposal is reduced by any amount that another provision of this Act (except sections 40-285 and 40-370) requires you to include in your assessable income because of the disposal. Note: sections 40-285 and 40-370 are about including an amount after making a balancing adjustment on the disposal of a car. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.155 Exception for particular cars taken on hire This Subdivision does not apply to these kinds of leases: (a) letting a * car on hire under a *hire purchase agreement; or (b) letting a * car on hire under an agreement of a kind ordinarily entered into by people who take cars on hire intermittently on an hourly, daily, weekly or monthly basis. INCOME TAX ASSESSMENT ACT 1997 - SECT 20.157 Exception for small business entities This Subdivision does not apply to you if, at any time in the income year in which you disposed of the * car, it was allocated to a pool of yours under Division 328. Disposals of interests in a car: special rules apply INCOME TAX ASSESSMENT ACT 1997 - SECT 20.160 Disposal of an interest in a car (1) This Subdivision applies to the disposal of an interest in a * car in almost the same way as it does to the disposal of the car itself. The differences are set out below. (2) Your assessable income includes so much of your * profit on the disposal as is reasonable. The limits in subsections 20-110(2) and 20-125(2) do not apply. (3) The cost of the interest to you is taken to be a reasonable amount. (4) Sections 20-135 and 20-140 do not apply to the disposal. Note 1: Section 20-135 says that you do not include an amount if there has been an earlier disposal of the car for market value. Note 2: Section 20-140 allows you to reduce the amount to be included if there has been an earlier disposal of the car. (5) Section 20-145 applies to the disposal if you inherited either the interest or the * car itself. Note: Section 20-145 says that you do not include an amount if you inherited the car. Guide to Division 25 INCOME TAX ASSESSMENT ACT 1997 - SECT 25.1 What this Division is about This Division sets out some amounts you can deduct. Remember that the general rules about deductions in Division 8 (which is about general deductions) apply to this Division. Table of sections Operative provisions 25-5 Tax-related expenses 25-10 Repairs 25-15 Amount paid for lease obligation to repair 25-20 Lease document expenses 25-25 Borrowing expenses 25-30 Expenses of discharging a mortgage 25-35 Bad debts 25-40 Loss from profit-making undertaking or plan 25-45 Loss by theft etc. 25-47 Misappropriation where a balancing adjustment event occurs 25-50 Payments of pensions, gratuities or retiring allowances 25-55 Payments to associations 25-60 Parliament election expenses 25-65 Local government election expenses 25-70 Deduction for election expenses does not extend to entertainment 25-75 Rates and land taxes on premises used to produce mutual receipts 25-85 Certain returns in respect of debt interests 25-90 Deduction relating to foreign non-assessable non-exempt income 25-95 Deduction for work in progress amounts 25-105 Deductions for United Medical Protection Limited support payments 25-100 Travel between workplaces 25-110 Capital expenditure to terminate lease etc. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 25.5 Tax-related expenses (1) You can deduct expenditure you incur to the extent that it is for: (a) managing your * tax affairs; or (b) complying with an obligation imposed on you by a * Commonwealth law, insofar as that obligation relates to the * tax affairs of an entity; or (c) the * general interest charge or the *shortfall interest charge; or (ca) a penalty under Subdivision 162-D of the * GST Act; or (d) obtaining a valuation in accordance with section 30-212 or 31-15. Note 1: To find out whether a trustee of a deceased estate can deduct expenditure under this section, see subsection 69(7) of the Income Tax Assessment Act 1936. Note 2: If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A. No deduction for certain expenditure (2) You cannot deduct under subsection (1): (a) * tax; or (b) an amount withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the Taxation Administration Act 1953; or (c) expenditure for * borrowing money (including payments of interest) to pay an amount covered by paragraph (a) or (b); or (d) expenditure for a matter relating to the commission (or possible commission) of an offence against an * Australian law or a * foreign law; or (e) a fee or commission for advice about the operation of a * Commonwealth law relating to taxation, unless that advice is provided by a * recognised tax adviser. No deduction for expenditure excluded from general deductions (3) You cannot deduct expenditure under subsection (1) to the extent that a provision of this Act (except section 8-1) expressly prevents or limits your deducting it under section 8-1 (about general deductions). It does not matter whether the provision specifically refers to section 8-1. No deduction for capital expenditure (4) You cannot deduct capital expenditure under subsection (1). However, for this purpose, expenditure is not capital expenditure merely because the * tax affairs concerned relate to matters of a capital nature. Example: Under this section, you can deduct expenditure you incur in applying for a private ruling on whether you can depreciate an item of property. Use of property taken to be for income producing purpose (5) Under some provisions of this Act it is important to decide whether you used property for the * purpose of producing assessable income. For provisions of that kind, your use of property is taken to be for that purpose insofar as you use the property for: (a) managing your * tax affairs; or (b) complying with an obligation imposed on you by a * Commonwealth law, insofar as that obligation relates to the * tax affairs of another entity. Example: You buy a computer to prepare your tax returns. The expenditure you incur in buying the computer is capital expenditure and cannot be deducted under this section. However, to the extent that you use the computer in preparing your income tax return, you will be able to deduct the decline in value of your computer under Division 40. That is because, under this subsection, the computer is property that you are taken to use for the purpose of producing assessable income. (6) If another provision of this Act expressly provides that a particular use of property is not taken to be for the * purpose of producing assessable income, that provision overrides subsection (5). No double deduction for general interest charge on a running balance account (7) If you deduct * general interest charge that applies to an RBA deficit debt, you can't also deduct the corresponding general interest charge on * tax debts that have been allocated to the RBA. Note: RBAs (running balance accounts) are dealt with in Part IIB of the Taxation Administration Act 1953. Expenditure by trustee of deceased estate (8) If: (a) after you die, the trustee of your deceased estate incurs expenditure; and (b) had you incurred the expenditure before you died, you could have deducted it under subsection (1); for the purposes of assessing the trustee for the income year in which you died, the expenditure is a deduction under that subsection. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.10 Repairs (1) You can deduct expenditure you incur for repairs to premises (or part of premises) or a * depreciating asset that you held or used solely for the * purpose of producing assessable income. Property held or used partly for that purpose (2) If you held or used the property only partly for that purpose, you can deduct so much of the expenditure as is reasonable in the circumstances. No deduction for capital expenditure (3) You cannot deduct capital expenditure under this section. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.15 Amount paid for lease obligation to repair You can deduct an amount that you pay for failing to comply with a lease obligation to make repairs to premises if you use or have used the premises for the * purpose of producing assessable income. Note: The amount is assessable income of the entity to which you pay it: either as ordinary income under section 6-5 or because it is included by section 15-25. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.20 Lease document expenses (1) You can deduct expenditure you incur for preparing, registering or stamping: (a) a lease of property; or (b) an assignment or surrender of a lease of property; if you have used or will use the property solely for the * purpose of producing assessable income. Property used partly for that purpose (2) If you have used, or will use, the leased property only partly for that purpose, you can deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.25 Borrowing expenses (1) You can deduct expenditure you incur for * borrowing money, to the extent that you use the money for the * purpose of producing assessable income. In most cases the deduction is spread over the * period of the loan. For the cases where the deduction is not spread, see subsection (6). Note: Your deductions under this section may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E. Income year when money used solely for the purpose of producing assessable income (2) You can deduct for an income year the maximum amount worked out under subsection (4) if you use the * borrowed money during that income year solely for the * purpose of producing assessable income. Example: In 1997-98 you borrow $100,000 and incur expenditure of $1,500 for the borrowing. You use the money to buy a house. Throughout 1998-99 you rent the house to a tenant. You can deduct for the expenditure for 1998-99 the maximum amount worked out under subsection (4). Income year when borrowed money used partly for that purpose (3) If you use the money only partly for that purpose during that income year, you can deduct the proportion of that maximum amount that is appropriate having regard to the extent that you used the * borrowed money for that purpose. Note: You cannot deduct anything for that income year if you do not use the money for that purpose at all during that income year. Maximum deduction for an income year (4) You work out as follows the maximum amount that you can deduct for the expenditure for an income year: Method statement Step 1. Work out the remaining expenditure as follows: • For the income year in which the * period of the loan begins, it is the amount of the expenditure. • For a later income year, it is the amount of the expenditure reduced by the the maximum amount that you can deduct for the expenditure for each earlier income year. Step 2. Work out the remaining loan period as follows: • For the income year in which the * period of the loan begins, it is the period of the loan (as determined at the end of the income year). • For a later income year, it is the period from the start of the income year until the end of the period of the loan (as determined at the end of the income year). Step 3. Divide the remaining expenditure by the number of days in the remaining loan period. Step 4. Multiply the result from Step 3 by the number of days in the remaining loan period that are in the income year. Example: To continue the example in subsection (2): suppose the original period of the loan is 4 years starting on 1 September 1997. What is the maximum amount you can deduct for the expenditure for 1997-98? Applying the method statement: After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure). After Step 2: the remaining loan period is 4 years from 1 September 1997 (1,461 days). After Step 3: the result is $1,500 divided by 1,461 = $1.03. After Step 4: the result is $1.03 multiplied by 302 days = $310.06. Suppose you repay the loan early, on 31 December 1998. What is the maximum amount you can deduct for the expenditure for 1998-99? Applying the method statement: After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure) reduced by $310.06 (the maximum amount you can deduct for 1997-98) = $1,189.94. After Step 2: the remaining loan period is the period from 1 July 1998 to 31 December 1998 (183 days). After Step 3: the result is $1,189.94 divided by 183 days = $6.50. After Step 4: the result is $6.50 multiplied by 183 days = $1,189.94. Meaning of period of the loan (5) The period of the loan is the shortest of these periods: (a) the period of the loan as specified in the original loan contract; (b) the period starting on the first day on which the money was borrowed and ending on the day the loan is repaid; (c) 5 years starting on the first day on which the money was borrowed. When deduction not spread (6) If the total of the following is $100 or less: (a) each amount of expenditure you incur in an income year for * borrowing money you use during that income year solely for the * purpose of producing assessable income; (b) for each amount of expenditure you incur in that income year for borrowing money you use during that income year only partly for that purpose--the proportion of that amount that is appropriate having regard to the extent that you use the money during that income year for that purpose; you can deduct for the income year: (c) each amount covered by paragraph (a); and (d) each proportion covered by paragraph (b). INCOME TAX ASSESSMENT ACT 1997 - SECT 25.30 Expenses of discharging a mortgage Mortgage for borrowed money (1) You can deduct expenditure you incur to discharge a mortgage that you gave as security for the repayment of money that you * borrowed if you used the money solely for the * purpose of producing assessable income. Mortgage for property bought (2) You can deduct expenditure you incur to discharge a mortgage that you gave as security for the payment of the whole or part of the purchase price of property that you bought if you used the property solely for the * purpose of producing assessable income. Money or property used partly for that purpose (3) If you used the money you * borrowed, or the property you bought, only partly for the * purpose of producing assessable income, you can deduct the expenditure to the extent that you used the money or property for that purpose. No deduction for payments of principal or interest (4) You cannot deduct payments of principal or interest under this section. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.35 Bad debts (1) You can deduct a debt (or part of a debt) that you write off as bad in the income year if: (a) it was included in your assessable income for the income year or for an earlier income year; or (b) it is in respect of money that you lent in the ordinary course of your * business of lending money. Note: If a bad debt is in respect of a payment that is required to be made under a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936): see subsection 63(1A) of that Act. Writing off a debt you have bought (2) You can deduct a debt that you write off as bad in the income year if you bought the debt in the ordinary course of your * business of lending money. However, you cannot deduct more than the expenditure you incurred in buying the debt. Writing off part of a debt you have bought (3) You can deduct a part of a debt if: (a) you write off that part as bad in the income year; and (b) you bought the debt in the ordinary course of your * business of lending money. (4) However, the maximum that you can deduct under subsection (3) for one or more income years is the amount (if any) by which: • the expenditure you incurred in buying the debt; exceeds: • so much of the debt as has not yet been written off as bad. Limit on deductions for bad debts under leases of luxury cars (4A) There is a limit to how much you can deduct under this section for debts you write off that relate to * luxury car lease payments that have become or will become liable to be made under a lease of a * car to which Division 242 (about luxury car leases) applies. (4B) The most you can deduct for an income year is: • the interest for the notional loan you are taken to have made to the lessee; reduced by: • each amount that you have deducted, or can deduct, for an earlier income year under this section (or section 63 of the Income Tax Assessment Act 1936) for debts relating to * luxury car lease payments that have become or will become liable to be made under the lease. Special rules affecting deductions under this section (5) The rules described in the table may affect your entitlement to deductions under this section, or may result in a deduction being reversed. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Rules affecting deductions for bad debts Item For the rules about this situation: See: 1 A company cannot deduct a bad debt if there has been a change in ownership or control of the company and the company has not satisfied the same business test. Subdivisions 165-C and 166-C 2 A company cannot deduct a bad debt in various other cases that may involve trafficking in bad debts. Subdivision 175-C and section 63D 3 A deduction under this section is reduced if the debt is forgiven and the debtor and creditor are companies under common ownership and agree for the creditor to forgo the deduction to a specified extent. section 245-90 4 If you receive an amount as recoupment of a bad debt that you can deduct under this section, the amount may be included in your assessable income. Subdivision 20-A 5 Certain trusts cannot deduct a bad debt if there has been a change in ownership or control or an abnormal trading in their units Divisions 266 and 267 in Schedule 2F 6 An entity that used to be a member of a consolidated group or MEC group can deduct a bad debt that used to be owed to a member of the group only if certain conditions are met Subdivisions 709-D and 719-I Note: Subsections 230-180(3), (5) and (6) and 230-195(3), (5) and (6) provide that in certain circumstances a deduction for a loss in relation to a financial arrangement is to be treated, for the purposes of this Act, as a deduction of a bad debt. The rules referred to in this subsection apply to that deduction. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.40 Loss from profit-making undertaking or plan (1) You can deduct a loss arising from the carrying on or carrying out of a profit-making undertaking or plan if any profit from that plan would have been included in your assessable income by section 15-15 (which is about profit-making undertakings and plans). When section does not apply (2) You cannot deduct a loss under subsection (1) if the loss arises in respect of the sale of property acquired on or after 20 September 1985. Note: If you sell property you acquired before 20 September 1985 for profit-making by sale, you may be able to deduct a loss on the sale: see section 52 of the Income Tax Assessment Act 1936. Notice to Commissioner (3) You can deduct a loss under subsection (1), insofar as it arises in respect of property, only if: (a) you notified the Commissioner that you acquired the property for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or plan (however described); or (b) the Commissioner is satisfied that you acquired the property for either of those purposes. When notice must have been given (4) The notice must have been given at or before the time you lodged your * income tax return: (a) for the income year in which you acquired the property; or (b) if you were not required to lodge an income tax return for that income year--for the first income year after that income year for which you were required to lodge one. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.45 Loss by theft etc. You can deduct a loss in respect of money if: (a) you discover the loss in the income year; and (b) the loss was caused by theft, stealing, embezzlement, larceny, defalcation or misappropriation by your employee or * agent (other than an individual you employ solely for private purposes); and (c) the money was included in your assessable income for the income year, or for an earlier income year. Note: If you receive an amount as recoupment of the loss, the amount may be included in your assessable income: see Subdivision 20-A. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.47 Misappropriation where a balancing adjustment event occurs (1) You can deduct an amount if: (a) a * balancing adjustment event occurs for a *depreciating asset you * held; and (b) your employee or * agent misappropriates (whether by theft, embezzlement, larceny or otherwise) all or part of the amount applicable to you under: (i) item 8 of the table in subsection 40-300(2); or (ii) item 1, 3, 4 or 6 of the table in subsection 40-305(1); in relation to the balancing adjustment event. Note 1: The amount applicable to you under subsection 40-300(2) or 40-305(1) may be the market value of an asset or of a non-cash benefit. Note 2: If you receive an amount as recoupment of the amount misappropriated, the amount may be included in your assessable income: see Subdivision 20-A. (2) The amount you can deduct is so much of the amount misappropriated as represents an amount applicable to you under item 8 of the table in subsection 40-300(2) or item 1, 3, 4 or 6 of the table in subsection 40-305(1) in relation to the * balancing adjustment event. (3) You can deduct the amount for the income year in which the misappropriation happens. (4) You must reduce the amount you can deduct under this section if your deductions for the asset have been reduced under section 40-25 because of use for a purpose other than a * taxable purpose. The reduction is by the same proportion you reduce the balancing adjustment amount for the asset under section 40-290. (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this section for an income year if: (a) you discover the misappropriation after you lodged your * income tax return for the income year; and (b) the amendment is made at any time during the period of 4 years starting immediately after you discover the misappropriation. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.50 Payments of pensions, gratuities or retiring allowances (1) You can deduct a payment of a pension, gratuity or retiring allowance that you make to: (a) an employee; or (b) a former employee; or (c) a dependant of an employee or a former employee. (2) However, you can deduct it only to the extent that it is made in good faith in consideration of the past services of the employee, or former employee, in any * business that you carried on for the purpose of gaining or producing assessable income. (3) You cannot deduct a payment under this section if you can deduct it under any other provision of this Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.55 Payments to associations (1) You can deduct a payment you make for membership of a trade, business or professional association. Note: Alternatively, you can deduct the expense under section 8-1 (which is about general deductions) if you satisfy the requirements of that section. Maximum amount--$42 (2) However, $42 is the maximum amount you can deduct under this section for the payments that you make in the income year to any one association. If you deduct under section 8-1 (3) If you deduct a payment under section 8-1 (which is about general deductions) instead of this section: (a) the payment does not count towards the $42 limit; and (b) the amount that you can deduct for the payment is not limited to $42. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.60 Parliament election expenses (1) You can deduct expenditure you incur in contesting an election for membership of: (a) the Parliament of the Commonwealth; or (b) the Parliament of a State; or (c) the Legislative Assembly for the Australian Capital Territory; or (d) the Legislative Assembly of the Northern Territory of Australia. Note 1: Entertainment expenses are excluded: see section 25-70. Note 2: If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.65 Local government election expenses (1) You can deduct expenditure you incur in contesting an election for membership of a * local governing body, but you cannot deduct more than $1,000 per election. You deduct the expenditure for the income year in which you incur it. (2) However, you can deduct more than the $1,000 limit if: (a) you have received an amount as * recoupment of the expenditure; and (b) some or all of that amount is included in your assessable income for an income year; and (c) the total of your deductions for the election would be less than the $1,000 limit if you disregarded so much (the assessed recoupment) of the expenditure as equals the amount so included in your assessable income. In that case: (d) the assessed recoupment is disregarded in applying the $1,000 limit; and (e) the further amount that you can deduct because of paragraph (d) is deducted for the income year referred to in paragraph (b). Example: Chris is elected to the Bunyip Shire Council. In the 2007-08 income year he incurs expenditure of $1,200 in contesting the election, of which he deducts $1,000 (the limit under subsection (1)). In 2008-09, Chris receives $360 as an assessable recoupment of the expenditure. $300 of that is included in his assessable income by section 20-35 (as extended by section 20-50). Because of the assessable recoupment, $300 of the expenditure is disregarded under paragraph (2)(d) in applying the $1,000 limit. As a result, Chris's deductions are treated as being only $700, which is less than the limit. This does not affect his original deduction for 2007-2008, but it means he can deduct the previously undeducted $200, for 2008-09 (see paragraph (2)(e)). This triggers a further application of section 20-35 (as extended by section 20-50) to include the remaining $60 of the assessable recoupment in Chris's assessable income for 2008-09. His total deductions (net of recoupment included in assessable income) come to $840, which is the same as his original expenditure (net of recoupment). Note: An amount you receive as recoupment of expenditure may be included in your assessable income as an assessable recoupment under Subdivision 20-A, as ordinary income under section 6-5 or as statutory income under some other provision. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.70 Deduction for election expenses does not extend to entertainment (1) To the extent that you incur expenditure in respect of providing * entertainment, you cannot deduct it under section 25-60 or 25-65. (2) However, subsection (1) does not stop you deducting expenditure to the extent that you incur it in respect of: (a) providing * entertainment that is available to the public generally; or (b) providing food or drink to yourself, unless it would be concluded that you have a purpose of enabling or facilitating * entertainment to be provided to someone else. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.75 Rates and land taxes on premises used to produce mutual receipts (1) An entity can deduct these amounts it pays for premises: (a) rates which are annually assessed; (b) land tax imposed under a * State law or * Territory law. But only if it uses the premises: (c) for the purpose of producing mutual receipts; or (d) in carrying on a * business for the purpose of producing mutual receipts; or (e) for the purpose of producing amounts to which section 59-35 applies (amounts that would be mutual receipts but for prohibition on distributions to members); or (f) in carrying on a * business for the purpose of producing amounts to which section 59-35 applies. Note: If the entity receives an amount as recoupment of the rates or land tax, the amount may be included in its assessable income: see Subdivision 20-A When premises used only for deductible purposes (2) The entity can deduct the whole of the rates or land tax if it uses the premises only in one or more of these ways: (a) for the purpose of producing mutual receipts; (b) in carrying on a * business for the purpose of producing mutual receipts; (c) for the * purpose of producing assessable income. When premises used partly for deductible purposes (3) If the entity uses the premises partly in one or more of the ways referred to in subsection (2) and partly in some other way, it can deduct the rates or land tax to the extent that it uses the premises in one or more of the ways referred to in that subsection. No deduction under section 8-1 (4) The entity cannot deduct the rates or land tax under section 8-1 (which is about general deductions). INCOME TAX ASSESSMENT ACT 1997 - SECT 25.85 Certain returns in respect of debt interests (1) This section deals with a * return that an entity pays or provides on a * debt interest. (2) The * return is not prevented from being a *general deduction for an income year under section 8-1 merely because: (a) the return is * contingent on the economic performance (whether past, current or future) of: (i) the entity or a part of the entity's activities; or (ii) a * connected entity of the entity or a part of the activities of a connected entity of the entity; or (b) the return secures a permanent or enduring benefit for the entity or a connected entity of the entity. (3) If the * return is a *dividend, the entity can deduct the return to the extent to which it would have been a * general deduction under section 8-1 if: (a) the payment of the return were the incurring by the entity of a liability to pay the same amount as interest; and (b) that interest were incurred in respect of the finance raised by the entity and in respect of which the return was paid or provided; and (c) the * debt interest retained its character as a debt interest for the purposes of subsection (2). (4) Subsections (2) and (3) do not apply to a * return to the extent to which it would be a * general deduction under section 8-1 apart from this section. (4A) Subsections (2) and (3) do not apply to a * return on a * debt interest that is a * Division 230 financial arrangement. (5) Subject to regulations made for the purposes of subsection (6), subsections (2) and (3) do not apply to the return to the extent to which the annually compounded internal rate of return exceeds the * benchmark rate of return for the interest increased by 150 basis points. (6) The regulations may provide that subsection (5) applies in the circumstances specified in the regulations as if the reference to 150 basis points were a reference to a greater or lesser number of basis points. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.90 Deduction relating to foreign non-assessable non-exempt income An * Australian entity can deduct an amount of loss or outgoing from its assessable income for an income year if: (a) the amount is incurred by the entity in deriving income from a foreign source; and (b) the income is * non-assessable non-exempt income under section 23AI, 23AJ or 23AK of the Income Tax Assessment Act 1936; and (c) the amount is a cost in relation to a * debt interest issued by the entity that is covered by paragraph (1)(a) of the definition of debt deduction. Note: This section does not apply to a Division 230 financial arrangement. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.95 Deduction for work in progress amounts (1) You can deduct a * work in progress amount that you pay for the income year in which you pay it to the extent that, as at the end of that income year: (a) a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related; or (b) you reasonably expect a recoverable debt to arise in respect of the completion or partial completion of that work within the period of 12 months after the amount was paid. (2) You can deduct the remainder (if any) of the * work in progress amount for the following income year. (3) An amount is a work in progress amount to the extent that: (a) an entity agrees to pay the amount to another entity (the recipient); and (b) the amount can be identified as being in respect of work (but not goods) that has been partially performed by the recipient for a third entity but not yet completed to the stage where a recoverable debt has arisen in respect of the completion or partial completion of the work. (4) An amount does not stop being a work in progress amount merely because it is paid after a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.105 Deductions for United Medical Protection Limited support payments (1) You can deduct an amount that you pay for the income year in which you pay it to the extent that it consists of a * United Medical Protection Limited support payment. (2) A United Medical Protection Limited support payment is an amount payable under Division 1 of Part 3 of the Medical Indemnity Act 2002. (3) You cannot deduct an amount under this section if you can deduct it under any other provision of this Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.100 Travel between workplaces When a deduction is allowed (1) If you are an individual, you can deduct a * transport expense to the extent that it is incurred in your * travel between workplaces. Travel between workplaces (2) Your travel between workplaces is travel directly between 2 places, to the extent that: (a) while you were at the first place, you were: (i) engaged in activities to gain or produce your assessable income; or (ii) engaged in activities in the course of carrying on a * business for the purpose of gaining or producing your assessable income; and (b) the purpose of your travel to the second place was to: (i) engage in activities to gain or produce your assessable income; or (ii) engage in activities in the course of carrying on a business for the purpose of gaining or producing your assessable income; and you engaged in those activities while you were at the second place. (3) Travel between 2 places is not travel between workplaces if one of the places you are travelling between is a place at which you reside. (4) Travel between 2 places is not travel between workplaces if, at the time of your travel to the second place: (a) the arrangement under which you gained or produced assessable income at the first place has ceased; or (b) the * business in respect of which you engaged in activities at the first place has ceased. No deduction for capital expenditure (5) You cannot deduct expenditure under subsection (1) to the extent that the expenditure is capital, or of a capital nature. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.110 Capital expenditure to terminate lease etc. (1) You can deduct an amount for capital expenditure you incur to terminate a lease or licence (including an authority, permit or quota) that results in the termination of the lease or licence if the expenditure is incurred: (a) in the course of * carrying on a *business; or (b) in connection with ceasing to carry on a business. (2) The amount you can deduct is 20% of the expenditure: (a) for the income year in which the lease or licence is terminated; and (b) for each of the next 4 income years. Exceptions (3) You cannot deduct any amount for expenditure you incur to terminate a lease that, in accordance with * accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is classified as a finance lease. (4) If you incurred the expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this subsection, the amount of the expenditure would be more than the * market value of what it was for (assuming the termination did not occur and was never proposed to occur); the amount of expenditure you take into account is that market value. (5) You cannot deduct any amount for expenditure you incur to terminate a lease or licence if: (a) after the termination, you or an * associate of yours enters into another lease or licence with the same party or an associate of that party; and (b) the other lease or licence is of the same kind as the original one. (6) You cannot deduct any amount for expenditure you incur to terminate a lease or licence to the extent that the expenditure is for the granting or receipt of another lease or licence in relation to the asset that was the subject of the original lease or licence. Guide to Division 26 INCOME TAX ASSESSMENT ACT 1997 - SECT 26.1 What this Division is about This Division sets out some amounts that you cannot deduct, or that you cannot deduct in full. Table of sections Operative provisions 26-5 Penalties 26-10 Leave payments 26-15 Franchise fees windfall tax 26-17 Commonwealth places windfall tax 26-20 Assistance to students 26-22 Political contributions and gifts 26-25 Interest or royalty 26-26 Non-share distribution and dividends 26-30 Relative's travel expenses 26-35 Reducing deductions for amounts paid to related entities 26-40 Maintaining your family 26-45 Recreational club expenses 26-47 Non-business boating activities 26-50 Expenses for a leisure facility 26-52 Bribes to foreign public officials 26-53 Bribes to public officials 26-54 Expenditure relating to illegal activities 26-55 Limit on deductions 26-60 Superannuation contributions surcharge 26-65 Termination payments surcharge 26-68 Loss from disposal of eligible venture capital investments 26-70 Loss from disposal of venture capital equity 26-75 Excess contributions tax cannot be deducted 26-80 Financing costs on loans to pay superannuation contribution 26-85 Borrowing costs on loans to pay life insurance premiums 26-90 Superannuation supervisory levy 26-95 Superannuation guarantee charge Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 26.5 Penalties (1) You cannot deduct under this Act: (a) an amount (however described) payable, by way of penalty, under an * Australian law or a * foreign law; or (b) an amount ordered by a court to be paid on the conviction of an entity for an offence against an * Australian law or a * foreign law. (2) This section does not apply to an amount payable, by way of penalty, under Subdivision 162-D of the * GST Act. Note: See paragraph 25-5(1)(ca) for the deductibility of penalties that arise under Subdivision 162-D of the GST Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.10 Leave payments (1) You cannot deduct under this Act a loss or outgoing for long service leave, annual leave, sick leave or other leave except: (a) an amount paid in the income year to the individual to whom the leave relates (or, if that individual has died, to that individual's dependant or * legal personal representative); or (b) an * accrued leave transfer payment that is made in the income year. (2) An accrued leave transfer payment is a payment that an entity makes: (a) in respect of an individual's leave (some or all of which accrued while the entity was required to make payments in respect of the individual's leave, or leave the individual might take); and (b) when the entity is no longer required (or is about to stop being required) to make payments in respect of such leave; and (c) to another entity when the other entity has begun (or is about to begin) to be required to make payments in respect of such leave; and (d) under (or for the purposes of facilitating the provisions of) an * Australian law, or an award, order, determination or industrial agreement under an * Australian law. It does not matter whether the leave accrues to the individual as an employee or for some other reason. Example: Your employee goes to a new employer. You pay the new employer $2,000 for the employee's unused long service leave because an industrial agreement requires you to make that payment. Note: An accrued leave transfer payment is included in the assessable income of the entity to which it is made: see section 15-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.15 Franchise fees windfall tax You cannot deduct under this Act any tax that is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.17 Commonwealth places windfall tax You cannot deduct under this Act any tax that is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.20 Assistance to students (1) You cannot deduct under this Act: (ca) a student contribution amount within the meaning of the Higher Education Support Act 2003 paid to a higher education provider (within the meaning of that Act); or (cb) a payment made to reduce a debt to the Commonwealth under Chapter 4 of that Act; or (d) a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under Chapter 2B of the Social Security Act 1991 or Part 4A of the Student Assistance Act 1973. Exception when you provide a fringe benefit (2) Subsection (1) does not stop you deducting expenditure you incur in * providing a *fringe benefit. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.22 Political contributions and gifts You cannot deduct political contributions or gifts (1) You cannot deduct under this Act (other than Subdivision 30-DA): (a) a contribution (including a membership fee) or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation; or (b) a contribution or gift to an individual when the individual is a candidate in an election for members of: (i) an * Australian legislature; or (ii) a * local governing body; or (c) a contribution or gift to an individual who is a member of: (i) an Australian legislature; or (ii) a local governing body. Exception for employees and office holders (2) However, subsection (1) does not apply to a loss or outgoing incurred in gaining or producing assessable income from which an amount is required to be withheld under section 12-35 or 12-45 in Schedule 1 to the Taxation Administration Act 1953. Note: These provisions of the Taxation Administration Act 1953 require amounts to be withheld from income of employees and office holders. Starting and stopping being a candidate (3) For the purposes of this section, an individual: (a) starts being a candidate when the individual's intention to be or to attempt to be a candidate for the election is publicly available; and (b) stops being a candidate at the earlier of: (i) the time when the result of the election is declared or otherwise publicly announced by an entity (an electoral official) authorised under the relevant electoral legislation; and (ii) the time (if any) when the individual's intention to no longer be a candidate for the election is publicly available. Starting being a member (4) An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member when the individual's election as a member is declared or otherwise publicly announced by an electoral official. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.25 Interest or royalty (1) You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936) or a * royalty if: (a) Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953 requires you to withhold an amount from the interest or royalty; and (b) either: (i) you fail to withhold the amount; or (ii) after withholding the amount, you fail to comply with section 16-70 in that Schedule in relation to that amount. (2) You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936), or a * royalty, that is in the form of a *non-cash benefit if: (a) section 14-5 or 14-10 in Schedule 1 to the Taxation Administration Act 1953 requires you to pay an amount to the Commissioner before providing the benefit, because of Subdivision 12-F in that Schedule; and (b) you fail to pay the amount as required by that section. (3) If: (a) apart from subsection (1) or (2), you can deduct interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936) or a * royalty for an income year; and (b) the * withholding tax payable for the interest or the royalty is paid; you can deduct the interest or royalty for that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.26 Non-share distributions and dividends (1) A company cannot deduct under this Act: (a) a * non-share distribution; or (b) a return that has accrued on a * non-share equity interest. (2) A company cannot deduct a * dividend paid on an * equity interest in the company as a * general deduction under this Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.30 Relative's travel expenses (1) You cannot deduct under this Act a loss or outgoing you incur, insofar as it is attributable to your * relative's travel, if: (a) you travelled in the course of performing your duties as an employee, or in the course of carrying on a * business for the purpose of gaining or producing your assessable income; and (b) your relative accompanied you while you travelled. Exception to subsection (1) (2) Subsection (1) does not stop you deducting a loss or outgoing if: (a) your * relative, while accompanying you, performed substantial duties as your employer's employee, or as your employee; and (b) it is reasonable to conclude that your relative would still have accompanied you even if he or she had not had a personal relationship with you. Exception when you provide a fringe benefit (3) Subsection (1) does not stop you deducting expenditure you incur in * providing a *fringe benefit. This section also applies to individuals who are not employees (4) If an individual is not an employee, but receives, or is entitled to receive, * withholding payments covered by subsection (6), this section applies to the individual as if: (a) he or she were an employee; and (b) the entity, who pays (or is liable to pay) * withholding payments covered by subsection (6) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual's employer; and (c) any other individual who receives (or is entitled to receive) * withholding payments covered by subsection (6): (i) that result in that other individual being in receipt of, or entitled to receive, such payments; and (ii) that the entity pays (or is liable to pay) to that other individual; were an employee of the entity. This section also applies to entities who are not employers (5) If an entity is not an employer, but pays (or is liable to pay) * withholding payments covered by subsection (6), this section applies to the entity as if: (a) it were an employer; and (b) an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity's employee. Withholding payments covered (6) This subsection covers: (a) a * withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table; and (b) a withholding payment covered by section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where: (i) the payment is made to a religious practitioner by a religious institution; and (ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution. Withholding payments covered Item Provision Subject matter 1 Section 12-40 Payment to company director 2 Section 12-45 Payment to office holder 3 Section 12-50 Return to work payment 4 Subdivision 12-D Benefit, training and compensation payments INCOME TAX ASSESSMENT ACT 1997 - SECT 26.35 Reducing deductions for amounts paid to related entities You can only deduct reasonable amounts paid to related entities (1) If, under another provision of this Act, you can deduct an amount for a payment you make, or for a liability you incur, to a * related entity, then you can only deduct so much of the amount as the Commissioner considers reasonable. Note: This section has a special operation if the payment is made, or the liability is incurred, by a partnership in which a private company is a partner: see section 65 (Payments to associated persons and relatives) of the Income Tax Assessment Act 1936. Meaning of related entity (2) A related entity is any of the following: (a) your * relative; or (b) a partnership in which your relative is a partner. (3) In the case of a partnership, a related entity is any of the following: (a) a * relative of a partner in the partnership; (b) an individual who is or has been a director of a company that is a partner in the partnership and is a * private company for the income year; (c) an entity that is or has been a shareholder in a company of that kind; (d) a * relative of an individual who is or has been a director or shareholder of a company of that kind; (e) a beneficiary of a trust if the trustee is a partner in the partnership; (f) a * relative of a beneficiary of a trust if the trustee is a partner in the partnership; (g) another partnership, if a partner in the other partnership is a * relative of a partner in the first partnership. However, a partner in a partnership is not a related entity of the partnership. If you can't deduct, then related entity doesn't include amount as income (4) To the extent that subsection (1) stops you deducting an amount, the amount is neither assessable income, nor exempt income, of the * related entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.40 Maintaining your family You cannot deduct under this Act expenditure you incur for maintaining: (a) your * spouse (except a spouse permanently living separately and apart from you); or (b) your * child who is under 16 years. Example: A farmer cannot deduct an amount for food or lodgings that the farmer provides to his or her child who is under 16 years for the work the child performs on the farm. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.45 Recreational club expenses (1) You cannot deduct under this Act a loss or outgoing to the extent you incur it to obtain or maintain: (a) membership of a * recreational club; or (b) rights to enjoy (otherwise than as a * member) facilities provided by a * recreational club for the use or benefit of its *members; whether for yourself or someone else. Meaning of recreational club (2) A recreational club is a company that was established or is carried on mainly to provide facilities, for the use or benefit of its * members, for drinking, dining, *recreation or entertainment. Exception when you provide a fringe benefit (3) Subsection (1) does not stop you deducting expenditure you incur in * providing a *fringe benefit. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.47 Non-business boating activities Object (1) The object of this section is to improve the integrity of the taxation system by preventing deductions from boating activities that are not carried on as a * business being offset against other assessable income. Rule (2) This Act applies to you as if so much of the amounts relating to using or * holding boats that you could otherwise deduct for an income year as exceeds your assessable income from using or holding boats for that year: (a) were not deductible for that income year; and (b) were an amount (a quarantined amount) relating to using or holding boats that you can deduct for the next income year. Note: A quarantined amount may be reduced under subsection (5) (for boat capital gains), reduced under subsection (7) (where you deduct part of a quarantined amount under subsection (6) for boat business profits), reduced under subsection (8) (about exempt income) or affected by subsection (10) (about bankruptcy). Example: Ian does not use his boat in a business. In Year 1, Ian would be able to claim $100,000 in deductions for the boat (but for this subsection), including interest, depreciation and running costs. He earns only $40,000 of income from the boat. He can only deduct $40,000. He carries the remaining $60,000 forward to Year 2 (the quarantined amount). In Year 2, Ian has $95,000 of expenses and $30,000 of income for the boat. He can deduct $30,000. The quarantined amount is now $125,000: the quarantined amount from Year 1 plus the excess of expenses over income from Year 2. In Year 3, Ian has $60,000 of expenses and $150,000 of income from the boat. The expenses from Year 3 plus the quarantined amount is $185,000. Therefore, Ian claims a deduction of $150,000 and carries forward $35,000 to Year 4. Exception: business use (3) The rule in subsection (2) does not apply to amounts that are attributable to one or more of the following: (a) * holding a boat as your *trading stock; (b) using a boat (or holding it) mainly for letting it on hire in the ordinary course of a * business that you *carry on; (c) using a boat (or holding it) mainly for transporting the public or goods for payment in the ordinary course of a business that you carry on; (d) using a boat for a purpose that is essential to the efficient conduct of a business that you carry on. Note: Even if this exception applies to you, you may still have to quarantine losses under Division 35 (deferral of losses from non-commercial business activities). Exception: fringe benefits (4) The rule in subsection (2) does not apply to so much of an amount you incur in * providing a *fringe benefit. Modification if you have boat capital gains (5) You reduce a quarantined amount you have for an income year by so much of that amount as is applied under section 118-80 to reduce a * capital gain you have for the year in relation to a boat. You make this reduction before you deduct an amount under subsection (6). Deduction if you have boat business profits (6) You can deduct all or part of your remaining quarantined amount for an income year if your assessable income for the year from activities of a kind referred to in subsection (3) exceeds your deductions for the year relating to those activities. The amount you can deduct is the lesser of that excess and that remaining quarantined amount. (7) You reduce your quarantined amount for the year by the amount you deduct. You make this reduction before a reduction under subsection (8). Modification if you have exempt income (8) You reduce any remaining quarantined amount you have for an income year by so much of your * net exempt income as is not applied for that income year under section 35-15 (about non-commercial business activities) or section 36-10 or 36-15 (about tax losses). Modification if you become bankrupt (9) The modification in subsection (10) has effect if: (a) in an income year (the current year) you become bankrupt or are released from a debt by the operation of an Act relating to bankruptcy; or (b) you became bankrupt before the current year and: (i) the bankruptcy is annulled in the current year under section 74 of the Bankruptcy Act 1966 because your creditors have accepted a proposal for a composition or scheme of arrangement; and (ii) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy. (10) This Act applies to you as if any amount that: (a) is a quarantined amount for you for the current year or was a quarantined amount for you for an earlier year; and (b) has not been applied under section 118-80 and that you have not yet deducted; were not an amount relating to using or holding boats that you can deduct for the current year or a later year. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.50 Expenses for a leisure facility (1) You cannot deduct under this Act a loss or outgoing to the extent you incur it: (a) to acquire ownership of a * leisure facility; or (b) to retain ownership of a leisure facility; or (c) to acquire rights to use a leisure facility; or (d) to retain rights to use a leisure facility; or (e) to use, operate, maintain or repair a leisure facility; or (f) in relation to any obligation associated with your ownership of a leisure facility; or (g) in relation to any obligation associated with your rights to use a leisure facility. However, there are exceptions (see subsections (3), (4) and (8)). What is a leisure facility? (2) A leisure facility is land, a building, or part of a building or other structure, that is used (or held for use) for holidays or * recreation. Exception--leisure facilities (3) Subsection (1) does not stop you deducting a loss or outgoing for a * leisure facility if at all times in the income year: (a) you hold the leisure facility for sale in the ordinary course of your business of selling leisure facilities; or (b) you use the leisure facility (or hold it for use) mainly to provide it: (i) in the ordinary course of your * business of providing leisure facilities for payment; or (ii) to produce your assessable income in the nature of rents, lease premiums, licence fees or similar charges; or (iii) for your employees to use; or (iv) for the care of your employees' * children. In the case of a company, subparagraphs (b)(iii) and (iv) do not apply to employees who are * members or directors of the company. Exception--part year use of leisure facilities (4) If you use a * leisure facility (or hold it) as described in subsection (3) at all times during part of the income year, then subsection (1) does not stop you deducting so much of the loss or outgoing as is reasonable in the circumstances. Anti-avoidance--when exceptions do not apply (7) A * leisure facility is taken not to be used (or held) as described in subsection (3) if: (a) apart from this subsection, the leisure facility would be used (or held) in that way because of a * scheme; and (b) in the Commissioner's opinion, the scheme would not have been entered into or carried out if this section had not been enacted. Exception when you provide a fringe benefit (8) Subsection (1) does not stop you deducting expenditure you incur in * providing a *fringe benefit. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.52 Bribes to foreign public officials (1) You cannot deduct under this Act a loss or outgoing you incur that is a * bribe to a foreign public official. (2) An amount is a bribe to a foreign public official to the extent that: (a) you incur the amount in, or in connection with: (i) providing a benefit to another person; or (ii) causing a benefit to be provided to another person; or (iii) offering to provide, or promising to provide, a benefit to another person; or (iv) causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and (b) the benefit is not legitimately due to the other person (see subsection (6)); and (c) you incur the amount with the intention of influencing a * foreign public official (who may or may not be the other person) in the exercise of the official's duties as a foreign public official in order to: (i) obtain or retain business; or (ii) obtain or retain an advantage in the conduct of business that is not legitimately due to you, or another person, as the recipient, or intended recipient, of the advantage in the conduct of business (see subsection (7)). The benefit may be any advantage and is not limited to property. (2A) For the purposes of subsection (2), disregard whether business, or a business advantage, was actually obtained or retained. Payments that written law of foreign public official's country requires or permits (3) An amount is not a bribe to a foreign public official if, assuming the benefit had been provided, and all related acts had been done, in the * foreign public official's country, a written law of that country would have required or permitted the provision of the benefit. Facilitation payments (4) An amount is not a bribe to a foreign public official if: (a) the value of the benefit is of a minor nature; and (b) the amount is incurred for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature. (5) For the purposes of this section, a routine government action is an action of a * foreign public official that: (a) is ordinarily and commonly performed by the official; and (b) is covered by any of the following subparagraphs: (i) granting a permit, licence or other official document that qualifies a person to do business in a foreign country or in a part of a foreign country; (ii) processing government papers such as a visa or work permit; (iii) providing police protection or mail collection or delivery; (iv) scheduling inspections associated with contract performance or related to the transit of goods; (v) providing telecommunications services, power or water; (vi) loading and unloading cargo; (vii) protecting perishable products, or commodities, from deterioration; (viii) any other action of a similar nature; and (c) does not involve a decision about: (i) whether to award new business; or (ii) whether to continue existing business with a particular person; or (iii) the terms of new business or existing business; and (d) does not involve encouraging a decision about: (i) whether to award new business; or (ii) whether to continue existing business with a particular person; or (iii) the terms of new business or existing business. Benefit not legitimately due (6) In working out if a benefit is not legitimately due to another person in a particular situation, disregard the following: (a) the fact that the benefit may be, or be perceived to be, customary, necessary or required in the situation; (b) the value of the benefit; (c) any official tolerance of the benefit. Advantage in the conduct of business that is not legitimately due (7) In working out if an advantage in the conduct of business is not legitimately due in a particular situation, disregard the following: (a) the fact that the advantage may be customary, or perceived to be customary, in the situation; (b) the value of the advantage; (c) any official tolerance of the advantage. Duties of foreign public official (8) The duties of a * foreign public official are any authorities, duties, functions or powers that: (a) are conferred on the official; or (b) the official holds himself or herself out as having. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.53 Bribes to public officials (1) You cannot deduct under this Act a loss or outgoing you incur that is a * bribe to a public official. (2) An amount is a bribe to a public official to the extent that: (a) you incur the amount in, or in connection with: (i) providing a benefit to another person; or (ii) causing a benefit to be provided to another person; or (iii) offering to provide, or promising to provide, a benefit to another person; or (iv) causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and (b) the benefit is not legitimately due to the other person (see subsection (3)); and (c) you incur the amount with the intention of influencing a * public official (who may or may not be the other person) in the exercise of the official's duties as a public official in order to: (i) obtain or retain business; or (ii) obtain or retain an advantage in the conduct of business that is not legitimately due to you, or another person, as the recipient, or intended recipient, of the advantage in the conduct of business (see subsection (4)). The benefit may be any advantage and is not limited to property. Benefit not legitimately due (3) In working out if a benefit is not legitimately due to another person in a particular situation, disregard the following: (a) the fact that the benefit may be customary, or perceived to be customary, in the situation; (b) the value of the benefit; (c) any official tolerance of the benefit. Advantage in the conduct of business that is not legitimately due (4) In working out if an advantage in the conduct of business is not legitimately due in a particular situation, disregard the following: (a) the fact that the advantage may be customary, or perceived to be customary, in the situation; (b) the value of the advantage; (c) any official tolerance of the advantage. Duties of public official (5) The duties of a * public official are any authorities, duties, functions or powers that: (a) are conferred on the official; or (b) the official holds himself or herself out as having. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.54 Expenditure relating to illegal activities (1) You cannot deduct under this Act a loss or outgoing to the extent that it was incurred in the furtherance of, or directly in relation to, a physical element of an offence against an * Australian law of which you have been convicted if the offence was, or could have been, prosecuted on indictment. (2) Despite section 170 of the Income Tax Assessment Act 1936, the Commissioner may amend your assessment at any time within 4 years after you are convicted of the relevant offence for the purpose of giving effect to subsection (1) of this section. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.55 Limit on deductions (1) There is a limit on the total of the amounts you can deduct for the income year under these provisions: (a) section 25-50 (which is about payments of pensions, gratuities or retiring allowances) of this Act; (ba) Division 30 (which is about deductions for gifts or contributions) of this Act; (bb) Division 31 (which is about deductions for conservation covenants) of this Act; (d) section 290-150 (which is about deductions for personal superannuation contributions). Do not include in the total an amount that you could also deduct under another provision of this Act, apart from section 8-10 (which prevents double deductions). (2) The limit is worked out by subtracting from your assessable income all your deductions except: (a) * tax losses; and See Division 36 (which is about tax losses of earlier income years). (c) the amount you can deduct for the income year under section 393-5 (which provides for deductions for making * farm management deposits). INCOME TAX ASSESSMENT ACT 1997 - SECT 26.60 Superannuation contributions surcharge You cannot deduct under this Act: (a) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997; or (b) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.65 Termination payments surcharge You cannot deduct under this Act a termination payments surcharge within the meaning of the Termination Payments Tax (Assessment and Collection) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.68 Loss from disposal of eligible venture capital investments Partners in VCLPs and ESVCLPs (1) You cannot deduct under this Act your share of a loss made from the disposal or other realisation of an * eligible venture capital investment if: (a) it is made by a * VCLP, or an *ESVCLP, that is *unconditionally registered; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, your share of any * capital gain or *capital loss would be disregarded under section 118-405 or 118-407. Partners in AFOFs (2) You cannot deduct under this Act your share of a loss made from the disposal or other realisation of an * eligible venture capital investment if: (a) it is made by: (i) an * AFOF that is *unconditionally registered; or (ii) a * VCLP, or an *ESVCLP, that is unconditionally registered and in which an AFOF that is * unconditionally registered is a partner; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, your share of any * capital gain or *capital loss would be disregarded under section 118-410. Eligible venture capital investors (3) You cannot deduct under this Act a loss made from the disposal or other realisation of an * eligible venture capital investment if: (a) you are an * eligible venture capital investor; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under section 118-415. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.70 Loss from disposal of venture capital equity You cannot deduct under this Act a loss made from the disposal or other realisation of * venture capital equity in a *resident investment vehicle if: (a) it is made by a * venture capital entity or a * limited partnership referred to in subsection 118-515(2); and (b) if that disposal or other realisation were a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under Subdivision 118-G. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.75 Excess contributions tax cannot be deducted You cannot deduct under this Act an amount of * excess contributions tax that you pay. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.80 Financing costs on loans to pay superannuation contribution (1) You can only deduct under this Act a * financing cost connected with a contribution you make to a * superannuation plan if you can deduct the contribution under Subdivision 290-B. (2) A financing cost connected with a contribution is expenditure incurred to the extent that it relates to obtaining finance to make the contribution, including: (a) interest, and payments in the nature of interest; and (b) expenses of borrowing. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.85 Borrowing costs on loans to pay life insurance premiums (1) You can only deduct under this Act interest on, or other expenses associated with, money you borrow to pay a premium for a * life insurance policy if: (a) the * risk component of the premium received by the insurer is the entire amount of the premium; and (b) each amount the insurer is liable to pay under the policy would be included in your assessable income if it were paid. (2) The risk component of a premium for a * life insurance policy means the amount of the premium worked out on the basis specified in the regulations. INCOME TAX ASSESSMENT ACT 1997 - SECT 26.90 Superannuation supervisory levy You cannot deduct under this Act so much of a levy imposed by the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 as represents the late lodgment amount (within the meaning of section 6 of that Act). INCOME TAX ASSESSMENT ACT 1997 - SECT 26.95 Superannuation guarantee charge You cannot deduct under this Act a charge imposed by the Superannuation Guarantee Charge Act 1992. Table of Subdivisions Guide to Division 27 27-A General 27-B Effect of input tax credits etc. on capital allowances Guide to Division 27 INCOME TAX ASSESSMENT ACT 1997 - SECT 27.1 What this Division is about This Division sets out the effect of the GST in working out deductions. Generally speaking, input tax credits, GST and adjustments under the GST Act are disregarded. Table of sections 27-5 Input tax credits and decreasing adjustments 27-10 Certain increasing adjustments 27-15 GST payments 27-20 Elements in calculation of amounts 27-25 GST groups and GST joint ventures 27-35 Certain sections not to apply to certain assets or expenditure INCOME TAX ASSESSMENT ACT 1997 - SECT 27.5 Input tax credits and decreasing adjustments You cannot deduct under this Act a loss or outgoing you incur, to the extent that the loss or outgoing includes an amount relating to an * input tax credit to which you are entitled or a *decreasing adjustment that you have. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.10 Certain increasing adjustments (1) You can deduct an amount of an * increasing adjustment that arises under Division 129 of the * GST Act. (2) However, you cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature. (3) If: (a) you have an * increasing adjustment under Division 138 of the * GST Act in respect of an asset as a result of the cancellation of your registration under Part 2-5 of the GST Act; and (b) immediately after the cancellation, you held the asset for the purpose of gaining or producing assessable income; you can deduct the amount of the increasing adjustment. (4) However, you cannot deduct an amount under subsection (1) or (3) to the extent that, because it becomes a component of a * net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits). INCOME TAX ASSESSMENT ACT 1997 - SECT 27.15 GST payments (1) You cannot deduct under this Act a loss or outgoing consisting of a payment under Division 33 of the * GST Act. (2) This section does not apply to the payment: (a) to the extent (if any) that the * net amount to which the payment relates was increased under section 21-5 of the * Wine Tax Act (which allows for such increases to take account of wine equalisation tax); and (b) to the extent (if any) that the * net amount was increased under section 13-5 of the * Luxury Car Tax Act (which allows for such increases to take account of luxury car tax); and (c) to the extent (if any) that the * net amount was increased under paragraph 13-10(1)(a) of the Luxury Car Tax Act (which allows for such alterations to take account of increasing luxury car tax adjustments under that Act). (3) This section does not apply to the payment of * GST (under section 33-15 of the * GST Act) on a *taxable importation that: (a) was not a * creditable importation; or (b) was * partly creditable; but only to the extent that that payment of GST exceeds the * input tax credit (if any) to which you are entitled for that importation. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.20 Elements in calculation of amounts In calculating an amount that you may be able to deduct: (a) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any * input tax credit for an * acquisition related to the amount paid or payable, or any * decreasing adjustment related to that amount; and (b) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any * GST payable on a * taxable supply related to the amount received or receivable, or any * increasing adjustment related to that amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.25 GST groups and GST joint ventures (1) A * member of a *GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the * GST Act (other than subsections 48-45(3) and (4)) did not apply to that member. (2) A * participant in a *GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the * GST Act did not apply to that participant. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.35 Certain sections not to apply to certain assets or expenditure Sections 27-5, 27-10, 27-15 and 27-20 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or 328. Note: See instead Subdivision 27-B. Table of sections 27-80 Cost or opening adjustable value of depreciating assets reduced for input tax credits 27-85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments 27-87 Certain decreasing adjustments included in assessable income 27-90 Cost or opening adjustable value of depreciating assets increased: increasing adjustments 27-92 Certain increasing adjustments can be deducted 27-95 Balancing adjustment events 27-100 Pooling 27-105 Other Division 40 expenditure 27-110 Input tax credit etc. relating to 2 or more things INCOME TAX ASSESSMENT ACT 1997 - SECT 27.80 Cost or opening adjustable value of depreciating assets reduced for input tax credits (1) A * depreciating asset's *cost is reduced if: (a) an entity's acquisition or importation of the asset constitutes a * creditable acquisition or *creditable importation; and (b) the entity is or becomes entitled to an * input tax credit for the acquisition or importation; and (c) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (2) A * depreciating asset's *cost is also reduced if: (a) the entity that * holds the asset incurs expenditure that is included in the second element of the asset's cost for the income year in which the asset's * start time occurs; and (b) the entity is or becomes entitled to an * input tax credit for the * creditable acquisition or * creditable importation to which the expenditure relates; and (c) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (3) However, subsections (1) and (2) do not apply if the * cost of the * depreciating asset is modified under Division 40 to be its * market value. (3A) A * depreciating asset's *opening adjustable value for an income year and its * cost is reduced if: (a) an entity's acquisition or importation of the asset constitutes a * creditable acquisition or *creditable importation; and (b) the entity is or becomes entitled to an * input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred; and (c) the income year is after the one in which the asset's * start time occurs; and (d) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (4) A * depreciating asset's *opening adjustable value for an income year and its * cost is reduced if: (a) the entity that * holds the asset incurs expenditure that is included in the second element of the asset's cost for that income year; and (b) that income year is after the one in which the asset's* start time occurs; and (c) the entity is or becomes entitled to an * input tax credit for the * creditable acquisition or * creditable importation to which the expenditure relates for the income year in which the expenditure was incurred; and (d) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (5) If the reduction under subsection (2), (3A) or (4) is more than: (a) for a subsection (2) case--the * depreciating asset's * cost; or (b) for a subsection (3A) or (4) case--the depreciating asset's * opening adjustable value; the excess is included in the entity's assessable income unless the entity is an * exempt entity. Exception: pooling (6) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the * current year; or (b) * in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments (1) This section applies to an entity if: (a) the entity can deduct amounts for a * depreciating asset under Division 40 or 328; and (b) the entity has a * decreasing adjustment in an income year that relates directly or indirectly to the asset. (1A) However, this section does not apply to a * decreasing adjustment that arises under Division 129 or 132 of the * GST Act. Note: See instead section 27-87. (2) The asset's * cost is reduced by an amount equal to the * decreasing adjustment if the adjustment arises in the income year in which the asset's * start time occurs. (3) The asset's * opening adjustable value for an income year and its * cost is reduced by an amount equal to the * decreasing adjustment if the adjustment arises in that year and that year is after the one in which the asset's* start time occurs. (4) If the reduction under subsection (2) or (3) is more than: (a) for a subsection (2) case--the * depreciating asset's * cost; or (b) for a subsection (3) case--the depreciating asset's * opening adjustable value; the excess is included in the entity's assessable income unless the entity is an * exempt entity. Exception: pooling (5) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the * current year; or (b) * in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.87 Certain decreasing adjustments included in assessable income (1) This section applies to an entity if: (a) the entity can deduct amounts for a * depreciating asset under Division 40 or 328; and (b) the entity has a * decreasing adjustment that arises under Division 129 or 132 of the * GST Act in an income year that relates directly or indirectly to the asset; and (c) section 27-95 does not apply to the entity in relation to the asset. (2) The amount of the * decreasing adjustment is included in the entity's assessable income for the income year unless the entity is an * exempt entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.90 Cost or opening adjustable value of depreciating assets increased: increasing adjustments (1) This section applies to an entity if: (a) the entity can deduct amounts for a * depreciating asset under Division 40 or 328; and (b) the entity has an * increasing adjustment in an income year that relates directly or indirectly to the asset. (1A) However, this section does not apply to an * increasing adjustment that arises under Division 129 or 132 of the * GST Act. Note: See instead section 27-92. (2) The asset's * cost is increased by an amount equal to the * increasing adjustment if the adjustment arises in the income year in which the asset's * start time occurs. (3) The asset's * opening adjustable value for an income year and its * cost is increased by an amount equal to the * increasing adjustment if the adjustment arises in that year and that year is after the one in which the asset's * start time occurs. Exception: pooling (4) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the * current year; or (b) * in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.92 Certain increasing adjustments can be deducted (1) This section applies to an entity if: (a) the entity can deduct amounts for a * depreciating asset under Division 40 or 328; and (b) the entity has an * increasing adjustment that arises under Division 129 or 132 of the * GST Act in an income year that relates directly or indirectly to the asset. (2) The entity can deduct the amount of the * increasing adjustment for the income year. (3) However, the entity cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.95 Balancing adjustment events (1) The * termination value of a *depreciating asset is reduced if the relevant * balancing adjustment event is a *taxable supply. The reduction is an amount equal to the * GST payable on the supply. (2) However, subsection (1) does not apply if the * termination value of the * depreciating asset is modified under Division 40 to be its * market value. (3) The * termination value of a *depreciating asset is increased if the entity that * held the asset has a *decreasing adjustment that relates directly or indirectly to that * taxable supply in the income year in which the *balancing adjustment event occurred. The increase is the amount of the decreasing adjustment. (4) The * termination value of a *depreciating asset is decreased if the entity that * held the asset has an *increasing adjustment that relates directly or indirectly to that * taxable supply in the income year in which the *balancing adjustment event occurred. The decrease is the amount of the increasing adjustment. (5) An amount is included in the assessable income of the entity that * held the asset if the entity has a *decreasing adjustment that relates directly or indirectly to that * taxable supply in a later income year. The amount included is the amount of the decreasing adjustment. (6) The entity that * held the asset can deduct an amount if the entity has an * increasing adjustment that relates directly or indirectly to that * taxable supply in a later income year. The amount it can deduct is the amount of the increasing adjustment. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.100 Pooling (1) This section contains special rules for expenditure (the pooled expenditure) incurred by an entity: (a) on a * depreciating asset allocated to a low-value pool; or (b) on a depreciating asset allocated to a pool under Division 328 for or in an income year; or (c) on * in-house software if the expenditure on the software is allocated to a software development pool; and (d) on * project amounts if the amounts are allocated to a project pool. Reduction to pools etc. (2) There is a reduction under subsection (3) or (5) if: (a) the pooled expenditure relates directly or indirectly to a * creditable acquisition or *creditable importation; and (b) the entity is or becomes entitled to an * input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred. (2A) There is a reduction under subsection (4) if: (a) the pooled expenditure relates directly or indirectly to a * creditable acquisition or *creditable importation; and (b) the entity is or becomes entitled to an * input tax credit in an income year (the credit year) for the acquisition or importation. Reduced cost of assets allocated to a pool (2B) A * depreciating asset's *cost is reduced if: (a) an entity's acquisition or importation of the asset constitutes a * creditable acquisition or *creditable importation; and (b) the entity is or becomes entitled to an * input tax credit for the acquisition or importation and the income year in which the acquisition or importation occurred is the same as the one in which the input tax credit arose; and (c) the asset is allocated to a low-value pool or a pool under Division 328 for or in that year. The reduction is the amount of the input tax credit. Low-value pools (3) For a low-value pool, the * closing pool balance of the pool for: (a) if the credit year is later than the first income year for which * depreciating assets were allocated to the pool--the income year before the credit year; or (b) if the credit year is the first income year for which * depreciating assets were allocated to the pool--the credit year; is reduced by an amount equal to the input tax credit. Software development pools and project pools (4) For a software development pool or a project pool, the expenditure in the pool for the credit year, or the * pool value for the credit year, is reduced by an amount equal to the * input tax credit. Small business pools (5) For a pool under Division 328, the * opening pool balance of the pool for the credit year is reduced by an amount equal to the input tax credit. No reduction if market value (5A) However, there is no reduction to the * cost of a *depreciating asset if its cost is modified under Division 40 to be its * market value. Second element of cost (6) There is a reduction under subsection (7) if: (a) the entity incurs expenditure in an income year (also the credit year) that is included in the second element of the * cost of a *depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the credit year; and (b) the entity is or becomes entitled, after the credit year, to an * input tax credit for the expenditure. (7) An amount equal to the amount of the * input tax credit is applied in reduction of: (a) for a low-value pool: (i) if the credit year is later than the first income year for which * depreciating assets were allocated to the pool--the * closing pool balance of the pool for the income year before the credit year; or (ii) if the credit year is the first income year for which * depreciating assets were allocated to the pool--the *closing pool balance of the pool for the credit year; or (b) for a pool under Division 328--the * opening pool balance of the pool for the credit year. (7A) There is a reduction to an amount of expenditure included in the second element of the * cost of a *depreciating asset if: (a) the asset is allocated to a low-value pool or a pool under Division 328 for or in the income year in which the expenditure was incurred; and (b) the entity that incurred the expenditure is or becomes entitled to an * input tax credit for the expenditure; and (c) the entitlement arises in the income year in which the expenditure was incurred. The reduction is the amount of the input tax credit. Increasing adjustments (8) There is an increase under subsection (9) if the entity has an * increasing adjustment (except one that arises under Division 129 or 132 of the * GST Act) in an income year (the adjustment year) that relates directly or indirectly to a * creditable acquisition or * creditable importation to which the pooled expenditure relates. Note: For an increasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-92. (9) An amount equal to the amount of that * increasing adjustment is added to: (a) for a low-value pool: (i) if the adjustment year is later than the first income year for which * depreciating assets were allocated to the pool--the * closing pool balance of the pool for the income year before the adjustment year; or (ii) if the adjustment year is the first income year for which * depreciating assets were allocated to the pool--the *closing pool balance of the pool for the adjustment year; or (b) for a pool under Division 328--the * opening pool balance of the pool for the adjustment year; or (c) for * in-house software--the amount of expenditure allocated to the software development pool for the adjustment year; or (d) for a project pool--the * pool value for the adjustment year. Decreasing adjustments (10) There is a decrease under subsection (11) if the entity has a * decreasing adjustment (except one that arises under Division 129 or 132 of the * GST Act) in an income year (also the adjustment year) that relates directly or indirectly to a * creditable acquisition or * creditable importation to which the pooled expenditure relates. Note: For a decreasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-87. (11) An amount equal to the amount of the * decreasing adjustment is applied in reduction of: (a) for a low-value pool: (i) if the adjustment year is later than the first income year for which * depreciating assets were allocated to the pool--the * closing pool balance of the pool for the income year before the adjustment year; or (ii) if the adjustment year is the first income year for which * depreciating assets were allocated to the pool--the *closing pool balance of the pool for the adjustment year; or (b) for a pool under Division 328--the * opening pool balance of the pool for the adjustment year; or (c) for * in-house software--the amount of expenditure allocated to the software development pool for the adjustment year; or (d) for a project pool--the * pool value for the adjustment year. (12) If the amount available for reduction under subsection (11) is more than the amount referred to in paragraph (11)(a), (b), (c) or (d) (whichever is applicable), the excess is included in the entity's assessable income unless the entity is an * exempt entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.105 Other Division 40 expenditure (1) This section applies to expenditure for which an entity can deduct amounts under Division 40 (but not under Subdivision 40-B or 40-E, or Subdivision 40-I to the extent that that Subdivision relates to project pools). (2) The amount of the expenditure is reduced if the entity is or becomes entitled to an * input tax credit for a *creditable acquisition or * creditable importation to which the expenditure directly or indirectly relates. The reduction is the amount of the input tax credit that relates to that expenditure. (3) If the entity has a * decreasing adjustment in an income year that relates directly or indirectly to the expenditure, an amount equal to the decreasing adjustment is included in the entity's assessable income for that income year. (4) If the entity has an * increasing adjustment in an income year that relates directly or indirectly to the expenditure, the entity can deduct an amount equal to the increasing adjustment for that income year. (5) If the entity is a partnership and partners in that partnership can deduct amounts under Division 40 because section 40-570 or 40-665 applies, an amount equal to the * input tax credit, the * decreasing adjustment or the * increasing adjustment is apportioned to each of the partners as set out in subsection 40-570(2) or 40-665(2). (6) However, this section does not apply to an * exempt entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 27.110 Input tax credit etc. relating to 2 or more things This Subdivision applies to an * input tax credit, or an * increasing adjustment or * decreasing adjustment, that relates directly or indirectly to 2 or more things of which at least one is a * depreciating asset as if a reasonable proportion of the input tax credit or adjustment related directly or indirectly to each of those depreciating assets and each of those other things. Table of Subdivisions Guide to Division 28 28-A Deductions for car expenses 28-B Choosing which method to use 28-C The "cents per kilometre" method 28-D The "12% of original value" method 28-E The "one-third of actual expenses" method 28-F The "log book" method 28-G Keeping a log book 28-H Odometer records for a period 28-I Retaining the log book and odometer records 28-J Situations where you cannot use, or don't need to use, one of the 4 methods Guide to Division 28 INCOME TAX ASSESSMENT ACT 1997 - SECT 28.1 What this Division is about This Division sets out the rules for working out deductions for car expenses if you own or lease a car or hire a car under a hire purchase agreement. Table of sections 28-5 Map of this Division INCOME TAX ASSESSMENT ACT 1997 - SECT 28.5 Map of this Division Table of sections 28-10 Application of Division 28 28-12 Car expenses 28-13 Meaning of car expense INCOME TAX ASSESSMENT ACT 1997 - SECT 28.10 Application of Division 28 (1) This Division applies to an individual. (2) It also applies to a partnership that includes at least one individual, as if the partnership were an individual. (3) It does not apply to any other entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.12 Car expenses (1) If you owned or leased a * car, you can deduct for the car's expenses an amount or amounts worked out using one of 4 methods. Note 1: For particular types of cars taken on hire you cannot use one of the 4 methods: see section 28-165. Note 2: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)). Note 3: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)). (2) You must use one of the 4 methods unless an exception applies. If you can't use any of the methods, you can't deduct anything for the * car expenses. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.13 Meaning of car expense (1) A car expense is a loss or outgoing to do with a * car. (2) In addition, any of the following is a car expense: (a) a loss or outgoing to do with operating a * car; (b) the decline in value of a car. (3) None of the following is a car expense: (a) a loss or outgoing incurred, or a payment made, in respect of travel outside Australia; (b) a taxi fare or similar loss or outgoing. Guide to Subdivision 28-B INCOME TAX ASSESSMENT ACT 1997 - SECT 28.14 What this Subdivision is about This Subdivision sets out the rules about choosing a method of calculating car expense deductions. Table of sections 28-15 Choosing among the 4 methods Operative provision 28-20 Rules governing choice of method INCOME TAX ASSESSMENT ACT 1997 - SECT 28.15 Choosing among the 4 methods Below is a graphic that gives information about the 4 methods of calculating car expense deductions. The 4 methods give you the choice of which method best suits your situation and needs. For instance, some methods will involve more paperwork than others, but could give you bigger deductions. There are also eligibility requirements for some methods, so you need to check that you are eligible to use a particular method. Operative provision INCOME TAX ASSESSMENT ACT 1997 - SECT 28.20 Rules governing choice of method (1) You can choose only one method for all the * car expenses for the *car for the income year. Choosing one method precludes any other method. (2) However, you can change your choice for the income year. Example: You choose the "log book" method and deduct $1,000. On audit, the Commissioner finds that your claim is too high and should be reduced to $500. You would have been able to deduct $700 if you had chosen the "cents per kilometre" method. This rule lets you change your choice and deduct the $700. (3) You can also choose different methods for the same * car for different income years and different methods for different cars for the same year. Table of sections 28-25 How to calculate your deduction 28-30 Capital allowances 28-35 Substantiation INCOME TAX ASSESSMENT ACT 1997 - SECT 28.25 How to calculate your deduction (1) To calculate your deduction using the "cents per kilometre" method, you multiply: the number of * business kilometres the *car travelled in the income year; by: a number of cents based on the car's engine capacity. The number of cents can be found in the regulations. (2) But you can use this formula for the first 5,000 * business kilometres only. If the * car travelled more than 5,000 business kilometres, you must discard the kilometres in excess of 5,000. Example: If the car travelled 5,085 business kilometres, you could claim for 5,000, and would lose the extra 85. (3) Business kilometres are kilometres the * car travelled in the course of: (a) producing your assessable income; or (b) your * travel between workplaces. You calculate the number of business kilometres by making a reasonable estimate. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.30 Capital allowances If a * balancing adjustment event occurs for the * car, you will need to refer to the capital allowances rules in Division 40 to find out how using this method affects the operation of those rules. See section 40-370 (about balancing adjustments for some cars). INCOME TAX ASSESSMENT ACT 1997 - SECT 28.35 Substantiation To use this method, you do not need to substantiate the * car expenses for the *car. Table of sections 28-45 How to calculate your deduction 28-50 Eligibility 28-55 Capital allowances 28-60 Substantiation INCOME TAX ASSESSMENT ACT 1997 - SECT 28.45 How to calculate your deduction (1) Using the "12% of original value" method, you deduct 12% of the cost of the * car when you acquired it, or 12% of its *market value when you first began to lease it. Note 1: The cost to a lessee of a luxury car to which Division 242 applies is to be worked out under section 242-20. Note 2: The cost of a car to which Division 240 applies is to be worked out under section 240-25. (2) But the most you can deduct using this method is 12% of the * car limit for the income year when you first used the *car for any purpose (if you own it) or when you first began to lease it. Note: Section 40-230 deals with the car limit. (3) Your deduction is reduced if you did not own or lease the * car for the whole income year. You can only deduct the amount worked out using the formula: The full year car deduction is the amount you could deduct if you had owned or leased the * car for the whole income year. A car-less day is a day when you did not own or lease the * car. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.50 Eligibility (1) You can use this method only if the number of * business kilometres travelled by the * car in the income year was more than 5,000, or would have been if you had used the car throughout the income year. (2) Business kilometres are kilometres the * car travelled in the course of: (a) producing your assessable income; or (b) your * travel between workplaces. You calculate the number of business kilometres by making a reasonable estimate. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.55 Capital allowances If a * balancing adjustment event occurs for the * car, you will need to refer to the capital allowances rules in Division 40 to find out how using this method affects the operation of those rules. See section 40-370 (about balancing adjustments for some cars). INCOME TAX ASSESSMENT ACT 1997 - SECT 28.60 Substantiation To use this method, you do not need to substantiate the * car expenses for the *car. Table of sections 28-70 How to calculate your deduction 28-75 Eligibility 28-80 Substantiation INCOME TAX ASSESSMENT ACT 1997 - SECT 28.70 How to calculate your deduction (1) Using the "one-third of actual expenses" method, you deduct one-third of each * car expense. (2) The expense must qualify as a deduction under some provision of this Act outside this Division (or would qualify if, throughout the income year, you had used the * car only in producing your assessable income). If only part of the expense would qualify, you deduct one-third of that part. Example: You borrow money to buy a car. You make repayments of principal and payments of interest. You cannot deduct the repayments of principal because they are capital expenses. The interest payments would be deductible in full if, throughout the income year, you had used the car only in producing your assessable income. Using the "one third of actual expenses" method, you can deduct one-third of the interest payments. To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions). INCOME TAX ASSESSMENT ACT 1997 - SECT 28.75 Eligibility (1) You can use this method only if the number of * business kilometres travelled by the * car in the income year was more than 5,000, or would have been if you had used the car throughout the income year. (2) Business kilometres are kilometres the * car travelled in the course of: (a) producing your assessable income; or (b) your * travel between workplaces. You calculate the number of business kilometres by making a reasonable estimate. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.80 Substantiation To use this method, you must substantiate the expenses under Subdivision 900-C. Table of sections 28-90 How to calculate your deduction 28-95 Eligibility 28-100 Substantiation INCOME TAX ASSESSMENT ACT 1997 - SECT 28.90 How to calculate your deduction (1) To use the "log book" method, you multiply the amount of each * car expense by the *business use percentage. The expense (2) The expense must qualify as a deduction under some provision of this Act outside this Division (or would qualify if, while you * held the *car, you had used it only in producing your assessable income). If only part of the expense would qualify, you multiply that part by the * business use percentage. Example: You borrow money to buy a car. You make repayments of principal and payments of interest. You cannot deduct the repayments of principal because they are capital expenses. The interest payments would be deductible in full if, throughout the income year, you had used the car only in producing your assessable income. Using the "log book" method: * if you held the car for the whole income year--multiply the interest payments by the business use percentage; * if you held the car for only 6 months of the income year--multiply the interest payments for those 6 months by the business use percentage. To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions). The percentage (3) The business use percentage is calculated by dividing: the number of * business kilometres that the *car travelled in the period when you * held it during the income year; by the total number of kilometres that the car travelled in that period; and expressing the result as a percentage. (4) Business kilometres are kilometres the * car travelled in the course of: (a) producing your assessable income; or (b) your * travel between workplaces. (5) You calculate the number of business kilometres by making a reasonable estimate. The estimate must take into account all relevant matters, including: (a) any log books, odometer records or other records you have; and (b) any variations in the pattern of use of the * car; and (c) any changes in the number of cars you used in the course of producing your assessable income. (6) You hold a * car while you own it, or it is leased to you, for use in the course of producing your assessable income, even if it is also used for some other purpose. Note 1: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)). Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)). INCOME TAX ASSESSMENT ACT 1997 - SECT 28.95 Eligibility You can use this method only if you * held the *car for some or all of the income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.100 Substantiation (1) To use this method, you must substantiate the * car expenses under Subdivision 900-C. (2) You must also keep a log book. Subdivision 28-G explains: how often you need to keep a log book; how to keep a log book. The log book is relevant to estimating the number of business kilometres the * car travelled in the period when you *held it during the income year. (3) You must keep odometer records for the period when you * held the * car during the income year. Subdivision 28-H tells you about odometer records, which document the total number of kilometres the car travelled in that period. (4) You must record the following information, in writing, before you lodge your * income tax return: (a) your estimate of the number of * business kilometres; and (b) the * business use percentage. However, the Commissioner may allow you to record the information later. (5) You must retain the log book and the odometer records. Subdivision 28-I has the rules about this. Guide to Subdivision 28-G INCOME TAX ASSESSMENT ACT 1997 - SECT 28.105 What this Subdivision is about This Subdivision tells you how to keep a log book. A log book is relevant to estimating the number of business kilometres the car travelled in the period when you held it during the income year. Table of sections 28-110 Steps for keeping a log book Operative provisions 28-115 Income years for which you need to keep a log book 28-120 Choosing the 12 week period for a log book 28-125 How to keep a log book 28-130 Replacing one car with another INCOME TAX ASSESSMENT ACT 1997 - SECT 28.110 Steps for keeping a log book There are 3 steps you need to follow in keeping a log book: identify an income year for which to keep a log book; choose a period of at least 12 weeks for the log book to cover; record journeys made in the car during the log book period in the course of producing your assessable income. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 28.115 Income years for which you need to keep a log book (1) You need to keep a log book for the first income year for which you use this method for the * car. (2) Having kept a log book for one income year, you don't need to keep a new one for the next 4 or more income years unless subsection (3) or (4) requires it. If you haven't kept a new log book for 4 income years in a row, you must keep one for the next income year. Example: If you keep a log book in 1997-98, you would need to keep the next one in 2002-2003, unless subsection (3) or (4) requires one sooner. (3) You must keep a log book for an income year if the Commissioner sends you a notice before the year directing you to keep a log book for the * car for that year. (4) You must keep a log book for an income year if, during that year, you get one or more additional * cars for which you want to use the "log book" method for that year. (5) When you replace one * car with another, you might have a period when you * hold both the new car and the old car, or a period when you no longer * hold the old car but do not yet hold the new car. In both these cases, you are treated for the purposes of subsection (4) as if you held the one car continuously. (6) You may choose to keep a log book for an income year even if you don't need to; for example, because you want to establish a higher * business use percentage. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.120 Choosing the 12 week period for a log book (1) The log book must cover a continuous period of at least 12 weeks throughout which you * held the *car. If you hold the car for less than 12 weeks, the period must be the entire period for which you held the car. (2) The period may overlap the start or end of the income year, so long as it includes part of the year. (3) If you want to use the "log book" method for 2 or more * cars for the same income year, the log books for those cars must cover periods that are concurrent. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.125 How to keep a log book (1) It is in your interests to record in the log book any journey made in the * car during the log book period in the course of producing your assessable income. If a journey is not recorded, the log book will indicate a lower * business use percentage than is actually the case. (2) A journey is recorded by making in the log book an entry specifying: (a) the day the journey began and the day it ended; (b) the * car's odometer readings at the start and end of the journey; (c) how many kilometres the car travelled on the journey; (d) why the journey was made. The record must be made at the end of the journey or as soon as possible afterwards. (3) If 2 or more journeys in a row are made in the * car on the same day in the course of producing your assessable income, they can be recorded as a single journey. (4) The following must be entered in the log book: (a) when the log book period begins and ends; (b) the * car's odometer readings at the start and the end of the period; (c) the total number of kilometres that the car travelled during the period; (d) the number of kilometres that the car travelled, in the course of producing your assessable income, on journeys recorded in the log book; (e) the number of kilometres referred to in paragraph (d), expressed as a percentage of the total number referred to in paragraph (c). Each of the entries must be made at or as soon as possible after the start or end of the period, as appropriate. (5) Each entry in the log book must be in English. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.130 Replacing one car with another (1) For the purposes of using the "log book" method, you may nominate one * car as having replaced another car with effect from a day specified in the nomination. (2) After the nomination takes effect, the replacement * car is treated as the original car, and the original car is treated as a different car. This means that you do not need to repeat for the replacement car the steps you have already taken for the original car under this Subdivision. (3) You must record the nomination in writing before you lodge your * income tax return for the income year in which the nomination takes effect. However, the Commissioner may allow you to do it later. (4) You must retain the nomination document until the end of the period for which you must retain the last log book that you began to keep for the original * car before the day of effect of the nomination. (5) Section 28-150 (which is about retaining log books) applies to the nomination document in the same way as it applies to that last log book. Guide to Subdivision 28-H INCOME TAX ASSESSMENT ACT 1997 - SECT 28.135 What this Subdivision is about This Subdivision tells you how to keep odometer records for a car during a particular period. Odometer records document the total number of kilometres the car travelled during a particular period. Table of sections Operative provision 28-140 How to keep odometer records for a car for a period Operative provision INCOME TAX ASSESSMENT ACT 1997 - SECT 28.140 How to keep odometer records for a car for a period (1) Odometer records for a period are kept in the form of a document in which the following are entered: (a) the * car's odometer readings at the start and the end of the period; (b) if there is a nomination under section 28-130 to replace the car with another * car with effect from a day in that period--the odometer readings, at the end of that day, of both cars affected by the nomination. (2) Each entry under subsection (1) must be in English and must be made at or as soon as possible after the start or end of the period, or the end of the specified day, as appropriate. (3) The following must also be entered in the document: (a) the * car's make, model and registration number (if any); (b) if the car has an internal combustion engine--its engine capacity expressed in cubic centimetres; (c) if there is a nomination under section 28-130 to replace the car with another * car--the corresponding details for the other car affected by the nomination. (4) Each entry under subsection (3) must be made in English and must be made before you lodge your * income tax return. (5) The Commissioner may allow you to make an entry under this section after you lodge your * income tax return. Table of sections 28-150 Retaining the log book for the retention period 28-155 Retaining odometer records INCOME TAX ASSESSMENT ACT 1997 - SECT 28.150 Retaining the log book for the retention period (1) You must retain the log book: (a) first, until the end of the latest income year for which you rely on the log book to support your calculation of the * business use percentage for the *car; and (b) then for another 5 years. The period for which you must retain the log book is called the retention period. (2) The 5 years start on the due day for lodging your * income tax return for that latest income year. If you lodge your return later, the 5 years start on the day you lodge it. (3) However, the * retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to a deduction worked out using a * business use percentage that you are relying on the log book to support. See section 900-170. (4) If you do not retain the log book for the * retention period, you cannot deduct any amount worked out using a * business use percentage that you are relying on the log book to support. If you have already deducted such an amount, your assessment may be amended to disallow the deduction. (5) For the purposes of the rules about retaining and producing records of expenses (see Subdivision 900-G), the log book is treated as a record of the * car expenses for each year for which you use a *business use percentage that you are relying on the log book to support. (6) If you lose the log book, there are rules that might help you in section 900-205. For the purposes of the rules about relief from the effects of failing to substantiate (see Subdivision 900-H), not doing something required by this Division is treated in the same way as not doing something necessary to follow the rules in Division 900. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.155 Retaining odometer records (1) You must retain your odometer records relating to the period when you * held the *car in the income year. (2) If you keep a log book for the income year, you must retain the odometer records for the same period as the log book, and section 28-150 applies to them in the same way as it applies to the log book. (3) If you don't keep a log book for the income year, you must retain the odometer records for the same period as written evidence of a * car expense for the *car for the income year, and section 900-75 applies to them in the same way as it applies to written evidence of an expense. Note: Section 900-75 is about retaining written evidence of a car expense. Guide to Subdivision 28-J INCOME TAX ASSESSMENT ACT 1997 - SECT 28.160 What this Subdivision is about This Subdivision sets out the situations where you cannot use, or don't need to use, any of the 4 methods. These situations involve either the nature of your car or the way you use it. Table of sections Operative provisions 28-165 Exception for particular cars taken on hire 28-170 Exception for particular cars used in particular ways 28-175 Further miscellaneous exceptions 28-180 Car expenses related to award transport payments 28-185 Application of Subdivision 28-J to PAYE to recipients and payers of certain withholding payments Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 28.165 Exception for particular cars taken on hire (1) For particular types of * cars taken on hire you cannot use one of the 4 methods to calculate your deductions for * car expenses. (2) Instead, you must calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) This section applies to a taxi taken on hire. (4) It also applies to a * motor vehicle taken on hire under an agreement of a kind ordinarily entered into by people who take motor vehicles on hire intermittently, as the occasion requires, on an hourly, daily, weekly or short term basis, except if the motor vehicle: (a) has been taken on hire under successive agreements of a kind that result in substantial continuity of the motor vehicle being taken on hire; or (b) it is reasonable to expect that the motor vehicle will be taken on hire under successive agreements of a kind that will so result. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.170 Exception for particular cars used in particular ways (1) For particular types of * cars used in particular ways you don't need to use one of the 4 methods to calculate your deductions for * car expenses. (2) You may use one of the 4 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) This section applies if, whenever you used the * car in the income year: (a) the car was covered by the description in column 2 of an item in the table below; and (b) you used the car as described in column 3 of that item. Item Column 2 Particular car Column 3 Exempt use 1. The * car was: (a) a panel van or utility truck; or (b) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed principally to carry passengers); or (c) a taxi. You used the car only in one or more of the following ways: (a) in the course of producing your assessable income; (b) to go between your residence and a place where you use the car in the course of producing your assessable income; (c) by providing the car to someone else to drive between his or her residence and a place where the car is used in the course of producing your assessable income; (d) for the purpose of travel that is incidental to using the car in the course of producing your assessable income; (e) for your own or someone else's private use that was minor, infrequent and irregular. 2. The * car was part of the trading stock of a *business of selling cars that you carried on. You used the car in the course of the business. 3. The * car was any type of car. You let the car on lease or hire in the course of a * business of letting cars on lease or hire that you carry on. 4. The * car was any type of car. As an employer, you provided the car for the exclusive use of one or more of the following: (a) your employees; (b) their * relatives; in circumstances where one or more of them was entitled to use the car for private purposes. Note: This Subdivision also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 28-185(3). INCOME TAX ASSESSMENT ACT 1997 - SECT 28.175 Further miscellaneous exceptions (1) This section lists some miscellaneous cases where you don't need to use one of the 4 methods to calculate your deductions for * car expenses. (2) You may use one of the 4 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) The cases are as follows: (a) the * car was unregistered throughout the period when you * held it during the income year, and during that period you used it principally in the course of producing your assessable income; or (b) at some time during the income year the * car was part of the trading stock of a * business of selling cars that you carried on, and you didn't use the car at any time during that year; or (c) the expense is to do with repairs to or other work on the * car, and you incurred it in the course of a * business that you carried on of doing repairs or other work on cars. In applying paragraph (a), the car is taken to be registered in a particular place while it is lawful to drive the car on a public road there. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.180 Car expenses related to award transport payments (1) Subdivision 900-I (Award transport payments) allows certain losses or outgoings to be deducted without getting written evidence. The losses or outgoings are * transport expenses related to an allowance or reimbursement paid or payable to you by your employer under an * industrial instrument that was in force on 29 October 1986. Note: This Subdivision also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 28-185(3). (2) If that Subdivision lets you deduct * car expenses, or parts of * car expenses, without getting written evidence, you don't need to use any of the 4 methods to calculate your deductions for those expenses or parts of expenses. (3) However, your use of the 4 methods for other * car expenses you incur for the * car for the income year is affected, unless you elect not to rely on Subdivision 900-I. Section 900-250 deals with this matter. INCOME TAX ASSESSMENT ACT 1997 - SECT 28.185 Application of Subdivision 28-J to recipients and payers of certain withholding payments Application to recipients (1) If an individual receives, or is entitled to receive, * withholding payments covered by subsection (3), this Subdivision applies to him or her: (a) in the same way as it applies to an employee; and (b) as if an entity (a notional employer) that makes (or is liable to make) such payments to him or her were his or her employer; and (c) as if any other individual who receives, or is entitled to receive, such payments from a notional employer were also an employee of the notional employer. Application to payers (2) This Division applies to an entity that makes, or is liable to make, * withholding payments covered by subsection (3): (a) in the same way as it applies to an employer; and (b) as if an individual to whom the entity makes (or is liable to make) such payments were the entity's employee. Withholding payments covered (3) This subsection covers a * withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table. Withholding payments covered Item Provision Subject matter 1 Section 12-35 Payment to employee 2 Section 12-40 Payment to company director 3 Section 12-45 Payment to office holder 3A Section 12-47 Payment to * religious practitioner 4 Section 12-50 Return to work payment 5 Subdivision 12-C Payments for retirement or because of termination of employment 6 Subdivision 12-D Benefit and compensation payments Table of Subdivisions Guide to Division 30 30-A Deductions for gifts or contributions 30-B Tables of recipients for deductible gifts 30-BA Endorsement of deductible gift recipients 30-C Rules applying to particular gifts of property 30-CA Administrative requirements relating to ABNs 30-D Testamentary gifts under the Cultural Bequests Program 30-DA Donations to political parties and independent candidates and members 30-DB Spreading certain gift and covenant deductions over up to 5 income years 30-E Register of environmental organisations 30-EA Register of harm prevention charities 30-F Register of cultural organisations 30-G Index to this Division Guide to Division 30 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.1 What this Division is about This Division sets out the rules for working out deductions for certain gifts or contributions that you make. Table of sections 30-5 How to find your way around this Division 30-10 Index INCOME TAX ASSESSMENT ACT 1997 - SECT 30.5 How to find your way around this Division (1) You should start at Subdivision 30-A unless you are making a contribution or gift to a political party, independent candidate or member, or a testamentary gift under the Cultural Bequests Program. Note 1: Subdivision 30-D deals with the deductibility of testamentary gifts under the Cultural Bequests Program. Note 2: Subdivision 30-DA deals with the deductibility of contributions and gifts to political parties, independent candidates and members. (2) Subdivision 30-A contains a table of all the gifts and contributions that you can deduct. You need to look at the table to see whether the type of gift or contribution you are making is covered by it. (3) In some cases, the table sends you off to Subdivision 30-B. It has a number of tables that list particular funds, authorities or institutions that deductible gifts can be made to. (4) In other cases, the table sends you off to Subdivision 30-C. It contains rules that apply to particular gifts of property. (4AA) Subdivision 30-BA provides for the Commissioner to endorse as a deductible gift recipient an entity that is, or operates, a fund, authority or institution. The relevance of the Subdivision to you is that generally you can deduct only a gift you make to a recipient that is endorsed or named in: (a) this Division; or (b) regulations made for the purposes of this Division. Note: The fact that gifts to a recipient registered in the Australian Business Register are deductible will be shown in the Register. (4AB) Subdivision 30-CA sets out administrative rules which do not directly affect whether you can deduct a gift you make. The rules require: (a) a receipt issued by an entity for a gift to the entity or to a fund, authority or institution operated by the entity to show the entity's ABN; and (b) the Australian Business Registrar to enter in the Australian Business Register a statement in relation to an entity entered in the Register if: (i) gifts to the entity are deductible; or (ii) gifts to a fund, authority or institution operated by the entity are deductible. (4B) Subdivision 30-DB allows you to spread deductions for certain gifts and covenants over up to 5 income years. (5) Subdivision 30-E requires the establishment of a register of * environmental organisations. Subdivision 30-EA requires the establishment of a register of * harm prevention charities. Subdivision 30-F requires the establishment of a register of * cultural organisations. Their only relevance to you is that you can deduct a gift that you make to a fund listed on one of those registers. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.10 Index There is an index to this Division in Subdivision 30-G. Table of sections 30-15 Table of gifts or contributions that you can deduct 30-17 Requirements for certain recipients INCOME TAX ASSESSMENT ACT 1997 - SECT 30.15 Table of gifts or contributions that you can deduct (1) You can deduct a gift or contribution that you make in the situations set out in the following table. It tells you: who the recipient of the gift or contribution can be; and the type of gift or contribution that you can make; and how much you can deduct for the gift or contribution; and any special conditions that apply. (2) A testamentary gift or contribution is not deductible under this section. Note 1: Subdivision 30-D deals with the deductibility of testamentary gifts under the Cultural Bequests Program. Note 2: Subdivision 30-DA deals with the deductibility of contributions and gifts to political parties, independent candidates and members. Deductible gifts or contributions Recipient Type of gift or contribution How much you can deduct Special conditions 1 A fund, authority or institution covered by an item in any of the tables in Subdivision 30-B. A gift of: (a) money; or (b) property (including * trading stock) that you purchased during the 12 months before making the gift; or (c) an item of your trading stock if: * the gift is a disposal of the item outside the ordinary course of your * business; and * no election has been made, or is made, in relation to the item under Subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of * live stock); or (d) property valued by the Commissioner at more than $5,000; or (a) if the gift is money--the amount you are giving; or (b) if the gift is property (except trading stock covered by paragraph (c), property covered by paragraph (d) or shares covered by paragraph (e))--the lesser of the market value of the property on the day you made the gift and the amount you paid for the property; or (c) if the gift is an item of your trading stock: * that you disposed of outside the ordinary course of your business; and * for which no election has been made, or is made, in relation to the item under Subdivision 385-E; the market value of the item on the day you made the gift; or (a) the fund, authority or institution must be in Australia; and (aa) the fund, authority or institution must either meet the requirements of section 30-17 or be mentioned by name in the relevant table item in Subdivision 30-B; and (b) the value of the gift must be $2 or more; and (c) any conditions set out in the relevant table item in Subdivision 30-B must be satisfied; and (d) if the property is to be valued by the Commissioner--the requirements of section 30-212 are satisfied. (e) * shares that you have acquired in a *listed public company if: * the shares are listed for quotation in the official list of a stock exchange that is listed under the heading "Australia" in regulations made for the purposes of the definition of * approved stock exchange; and * the *market value of the shares on the day you made the gift is $5,000 or less; and * you acquire the shares at least 12 months before making the gift. (d) if the gift is property valued by the Commissioner at more than $5,000 and you did not purchase the property during the 12 months before making the gift--the value of the property as determined by the Commissioner; or (e) if the gift is shares described in paragraph (e) of the previous column--the market value of the shares on the day you made the gift. 2 An * ancillary fund established and maintained under a will or instrument of trust solely for: (a) the purpose of providing money, property or benefits: * to a fund, authority or institution gifts to which are deductible under item 1 of this table; and * for any purposes set out in the item of the table in Subdivision 30-B that covers the fund, authority or institution; or A gift of: (a) money; or (b) property (including * trading stock) that you purchased during the 12 months before making the gift; or (c) an item of your trading stock if: * the gift is a disposal of the item outside the ordinary course of your * business; and * no election has been made, or is made, in relation to the item under Subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of * live stock); or (d) property valued by the Commissioner at more than $5,000; or (a) if the gift is money--the amount you are giving; or (b) if the gift is property (except trading stock covered by paragraph (c), property covered by paragraph (d) or shares covered by paragraph (e))--the lesser of the market value of the property on the day you made the gift and the amount you paid for the property; or (c) if the gift is an item of your trading stock: * that you disposed of outside the ordinary course of your business; and * for which no election has been made, or is made, in relation to the item under Subdivision 385-E; the market value of the item on the day you made the gift; or (a) the value of the gift must be $2 or more; and (b) the terms of the will or trust must allow the trustee to invest money that the ancillary fund receives because of the gift only in a way that an * Australian law allows trustees to invest trust money; and (c) the ancillary fund must meet the requirements of section 30-17; and (d) if the property is to be valued by the Commissioner--the requirements of section 30-212 are satisfied. (b) the establishment of such a fund, authority or institution. (e) * shares that you have acquired in a *listed public company if: * the shares are listed for quotation in the official list of a stock exchange that is listed under the heading "Australia" in regulations made for the purposes of the definition of * approved stock exchange; and * the *market value of the shares on the day you made the gift is $5,000 or less; and * you acquire the shares at least 12 months before making the gift. (d) if the gift is property valued by the Commissioner at more than $5,000 and you did not purchase the property during the 12 months before making the gift--the value of the property as determined by the Commissioner; or (e) if the gift is shares described in paragraph (e) of the previous column--the market value of the shares on the day you made the gift. 4 (a) the Australiana Fund; or (b) a public library in Australia; or (c) a public museum in Australia; or (d) a public art gallery in Australia; or (e) an institution in Australia consisting of a public library, a public museum and a public art gallery or any 2 of them. A gift of property (except an estate or interest in land or in a building or part of a building). The general rule is that you can deduct the average of the * GST inclusive market values (as reduced under subsection (3) if that subsection applies) specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general rule; and (c) the situations when the amount you can deduct is reduced. If the property is jointly owned, see section 30-225 to work out how much of the gift you can deduct. (a) the property must be accepted by the recipient for inclusion in a collection it is maintaining or establishing; and (b) the value of the gift must be $2 or more; and (ba) the institution must meet the requirements of section 30-17, unless it is the Australiana Fund; and (c) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the proceeds of the sale being assessable) applies. 5 The Commonwealth (for the purposes of Artbank). A gift of property (except an estate or interest in land or in a building or part of a building). The general rule is that you can deduct the average of the * GST inclusive market values (as reduced under subsection (3) if that subsection applies) specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general rule; and (c) the situations when the amount you can deduct is reduced. If the property is jointly owned, see section 30-225 to work out how much of the gift you can deduct. (a) the property must be accepted by the Commonwealth for inclusion in a collection maintained, or being established, for the purposes of Artbank; and (b) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the proceeds of the sale being assessable) applies. 6 (a) the National Trust of Australia (New South Wales); or (b) the National Trust of Australia (Victoria); or (c) The National Trust of Queensland; or (d) The National Trust of South Australia; or (e) The National Trust of Australia (W.A.); or (f) the National Trust of Australia (Tasmania); or (g) The National Trust of Australia (Northern Territory); or(h)the National Trust of Australia (A.C.T.); or (i) the Australian Council of National Trusts. A gift of a place included in: (a) the National Heritage List, or the Commonwealth Heritage List, under the Environment Protection and Biodiversity Conservation Act 1999; or (b) the Register of the National Estate under the Australian Heritage Council Act 2003. The general rule is that you can deduct the average of the * GST inclusive market values (as reduced under subsection (3) if that subsection applies) specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general rule; and (c) the situations when the amount you can deduct is reduced. If the place is jointly owned, see section 30-225 to work out how much of the gift you can deduct. (a) the place must be accepted by the recipient for the purpose of preserving it for the benefit of the public; and (b) the value of the gift must be $2 or more; and (c) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the proceeds of the sale being assessable) applies. 7 A * deductible gift recipient that is a fund, authority or institution covered by item 1 or 2 of this table. A contribution of: (a) money, if the amount is more than $150; or (b) property that you purchased during the 12 months before making the contribution, if the lesser of: * the *market value of the property on the day you made the contribution; and * the amount you paid for the property; is more than $150; or (c) property valued by the Commissioner at more than $5,000, if you did not purchase the property during the 12 months before making the contribution; or (a) if the contribution is money--the amount of the contribution, reduced by the * GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event; or (b) if the contribution is property that you purchased during the 12 months before making the contribution--the lesser of: * the market value of the property on the day you made the contribution; and * the amount you paid for the property; reduced by the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event; or (a) if the contribution is money--the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event must not exceed the lesser of: * 20% of the amount of the contribution; and * $150; and (ca) * shares that you have acquired in a *listed public company if: * the shares are listed for quotation in the official list of a stock exchange that is listed under the heading "Australia" in regulations made for the purposes of the definition of * approved stock exchange; and * the market value of the shares on the day you made the contribution is more than $150 and less than or equal to $5,000; and * you acquire the shares at least 12 months before making the contribution; (c) if the contribution is property valued by the Commissioner at more than $5,000 and you did not purchase the property during the 12 months before making the contribution--the value of the property as determined by the Commissioner, reduced by the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event; or (ca) if the contribution is shares described in paragraph (ca) of the previous column--the market value of the shares on the day you made the contribution, reduced by the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event. (b) if the contribution is property that you purchased during the 12 months before making the contribution--the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event must not exceed the lesser of: * 20% of the lesser of the market value of the property on the day you made the contribution and the amount you paid for the property; and * $150; and where: (d) the contribution is not a gift; and (e) either: * the contribution is made in return for a right permitting you to attend, or participate in, a particular * fund-raising event in Australia; or * the contribution is made in return for a right permitting an individual (other than you) to attend, or participate in, a particular fund-raising event in Australia. (c) if the contribution is property valued by the Commissioner at more than $5,000 and you did not purchase the property during the 12 months before making the contribution--the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event must not exceed $150; and (ca) if the contribution is shares described in paragraph (ca) of the column headed "Type of gift or contribution"--the GST inclusive market value, on the day you made the contribution, of the right to attend, or participate in, the fund-raising event must not exceed the lesser of: * 20% of the market value of the shares on the day you made the contribution; and * $150; and (d) if, instead of making the contribution, you had made a gift of money to the fund, authority or institution, and: * the amount of the gift had been more than $2; and * the gift had been made for the same purpose for which funds were to be raised by the fund-raising event; you could have deducted the gift under item 1 or 2 of this table; and (e) you must be an individual; and (f) you cannot deduct more than 2 contributions in relation to the same fund-raising event; and (g) if the property is to be valued by the Commissioner--the requirements of section 30-212 are satisfied. 8 A * deductible gift recipient that is a fund, authority or institution covered by item 1 or 2 of this table. A contribution of money, if: (a) the amount is more than $150; and (b) the contribution is not a gift; and (c) you made the contribution by way of consideration for the supply of goods or services; and The amount of the contribution, reduced by the GST inclusive market value, on the day you made the contribution, of the goods or services. (a) the GST inclusive market value, on the day you made the contribution, of the goods or services must not exceed the lesser of: * 20% of the amount of the contribution; and * $150; and (d) you made the contribution because you were the successful bidder at an auction that: * was a particular * fund-raising event in Australia; or * was held at a particular fund-raising event in Australia; and (e) the amount of the contribution exceeds the * GST inclusive market value, on the day you made the contribution, of the goods or services. (b) if, instead of making the contribution, you had made a gift of money to the fund, authority or institution, and: * the amount of the gift had been more than $2; and * the gift had been made for the same purpose for which funds were to be raised by the fund-raising event; you could have deducted the gift under item 1 or 2 of this table; and (c) you must be an individual. (3) For the purposes of items 4, 5 and 6 of the table in subsection (2), the * GST inclusive market values of the property or place in question are reduced by 1 /11 if you would have been entitled to an * input tax credit if: (a) you had * acquired the property or place at the time you made the gift; and (b) your acquisition had been for a * creditable purpose. (4) For the purposes of item 7 of the table in subsection (2), in working out the * GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money. (5) For the purposes of item 8 of the table in subsection (2), in working out the * GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.17 Requirements for certain recipients (1) This section sets out requirements to be met for you to be able to deduct a gift you make to a fund, authority or institution described in the column headed "Recipient" of item 1, 2 or 4 of the table in section 30-15. However, this section does not apply to: (a) a fund, authority or institution that is mentioned by name in an item of a table in Subdivision 30-B; or (c) the Australiana Fund. (2) The fund, authority or institution must: (a) be an entity or * government entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient; or (b) in the case of a fund--either: (i) be owned legally by an entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient for the operation of the fund; or (ii) be under the control of one or more persons who constitute a * government entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient for the operation of the fund; or (c) in the case of an authority or institution--be part of an entity or * government entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient for the operation of the authority or institution. Example: A public fund that is established and maintained for constructing a building to be used by a State school and is controlled by the principal of the school would be an example of a fund under the control of one or more persons who constitute a government entity that is endorsed as a deductible gift recipient for the operation of the fund, if the school were so endorsed. Table of sections Health 30-20 Health Education 30-25 Education 30-30 Gifts that must be for certain purposes 30-35 Gifts to a public fund established to benefit a rural school hostel building must satisfy certain requirements 30-37 Scholarship etc. funds Research 30-40 Research Welfare and rights 30-45 Welfare and rights 30-45A Australian disaster relief funds--declarations by Minister 30-46 Australian disaster relief funds--declarations under State and Territory law Defence 30-50 Defence Environment 30-55 The environment 30-60 Gifts to a National Parks body or conservation body must satisfy certain requirements Industry, trade and design 30-65 Industry, trade and design The family 30-70 The family 30-75 Marriage education organisations must be approved International affairs 30-80 International affairs 30-85 Developing country relief funds 30-86 Developed country disaster relief funds Sports and recreation 30-90 Sports and recreation Philanthropic trusts 30-95 Philanthropic trusts Cultural organisations 30-100 Cultural organisations Fire and emergency services 30-102 Fire and emergency services Other recipients 30-105 Other recipients Health INCOME TAX ASSESSMENT ACT 1997 - SECT 30.20 Health (1) This table sets out general categories of health recipients. Health--General Item Fund, authority or institution Special conditions 1.1.1 a public hospital none 1.1.2 a hospital carried on by a society or association otherwise than for the purposes of profit or gain to the individual members of the society or association none 1.1.3 a public fund established before 23 October 1963 and maintained for the purpose of providing money for hospitals covered by item 1.1.1 or 1.1.2 or for the establishment of such hospitals none 1.1.4 a public authority engaged in research into the causes, prevention or cure of disease in human beings, animals or plants the gift must be made for such research 1.1.5 a public institution engaged solely in research into the causes, prevention or cure of disease in human beings, animals or plants none 1.1.6 a charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings none 1.1.7 a public ambulance service none 1.1.8 a public fund established and maintained for the purpose of providing money for the provision of public ambulance services none (2) This table sets out specific health recipients. Health--Specific Item Fund, authority or institution Special conditions 1.2.1 The Royal Australian and New Zealand College of Obstetricians and Gynaecologists none 1.2.4 The Royal Australian and New Zealand College of Radiologists the gift must be made for education or research in medical knowledge or science 1.2.5 the New South Wales College of Nursing none 1.2.6 the Royal Australian and New Zealand College of Psychiatrists none 1.2.7 the Royal Australian College of General Practitioners the gift must be made for education or research in medical knowledge or science 1.2.8 the Royal Australasian College of Physicians none 1.2.9 the Royal Australasian College of Surgeons none 1.2.10 the Royal College of Pathologists of Australasia the gift must be made for education or research in medical knowledge or science 1.2.12 the Royal College of Nursing, Australia none 1.2.13 the Australian and New Zealand College of Anaesthetists none 1.2.14 SouthCare Helicopter Fund the gift must be made after 11 September 2000 1.2.16 National Breast Cancer Centre Gift Fund the gift must be made after 24 September 2001 and before 2 August 2011 1.2.17 The Bionic Ear Institute the gift must be made after 4 October 2001 and before 10 November 2010 1.2.18 The Australasian College for Emergency Medicine the gift must be made after 2 February 2009 1.2.19 Cancer Australia the gift must be made: (a) after 8 June 2011; and (b) for improving outcomes for Australians affected by breast cancer Education INCOME TAX ASSESSMENT ACT 1997 - SECT 30.25 Education (1) This table sets out general categories of education recipients. Education--General Item Fund, authority or institution Special conditions 2.1.1 a public university none 2.1.2 a public fund for the establishment of a public university none 2.1.3 a charitable or public institution that is a higher education provider within the meaning of the Higher Education Support Act 2003 none 2.1.4 a residential educational institution affiliated under statutory provisions with a public university none 2.1.5 a residential educational institution established by the Commonwealth none 2.1.6 a residential educational institution that is affiliated with a charitable or public institution that is a higher education provider within the meaning of the Higher Education Support Act 2003 none 2.1.7 an institution that the * Education Minister has determined to be a technical and further education institution under the Student Assistance Act 1973 see section 30-30 2.1.8 a public fund established and maintained solely for the purpose of providing religious instruction in government schools in Australia none 2.1.9 a public fund established and maintained by a Roman Catholic archdiocesan or diocesan authority solely for the purpose of providing religious instruction in government schools in Australia none 2.1.10 a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college by: (a) a government; or (b) a public authority; or (c) a society or association which is carried on otherwise than for the purposes of profit or gain to the individual members of the society or association none 2.1.11 a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a rural school hostel building see section 30-35 2.1.12 a government school that: (a) provides special education for students each of whom has a disability that is permanent or is likely to be permanent; and (b) does not provide education for other students none 2.1.13 a public fund: (a) that is established for charitable purposes; and (b) that is established and maintained solely for providing money for scholarships, bursaries or prizes to which section 30-37 applies see section 30-37 (2) This table sets out specific education recipients. Education--Specific Item Fund, authority or institution Special conditions 2.2.1 The Academy of the Social Sciences in Australia Incorporated none 2.2.2 the Australian Academy of Science none 2.2.3 the Australian Academy of the Humanities for the Advancement of Scholarship in Language, Literature, History, Philosophy and the Fine Arts none 2.2.4 the Australian Academy of Technological Sciences and Engineering Limited none 2.2.6 the Australian and New Zealand Association for the Advancement of Science none 2.2.7 the Australian Ireland Fund none 2.2.8 the Life Education Centre none 2.2.9 a company that conducts life education programs under the auspices of the Life Education Centre if the company: (a) is not carried on for the purposes of profit or gain to its individual members; and (b) is prohibited by its * constitution from making any distribution of money or property to its members the gift must be for the conduct of such programs 2.2.10 the Council for Christian Education in Schools none 2.2.11 the Council for Jewish Education in Schools none 2.2.13 the Lionel Murphy Foundation none 2.2.14 the Marcus Oldham Farm Management College see section 30-30 2.2.16 the Polly Farmer Foundation (Inc) none 2.2.17 The Australian Council of Christians and Jews the gift must be made after 6 December 1998 2.2.18 the Sir William Tyree Foundation of The Australian Industry Group the gift must be made after 28 February 1999 2.2.20 Australian Nuffield Farming Scholars Association the gift must be made after 16 April 2001 2.2.21 Dymocks Children's Charities Limited the gift must be made after 4 January 2001 2.2.22 Australian Primary Principals Association Education Foundation the gift must be made after 1 October 2001 2.2.23 Commonwealth Study Conferences (Australia) Incorporated the gift must be made after 19 February 2001 2.2.24 Mt Eliza Graduate School of Business and Government Limited the gift must be made after 4 April 2000 2.2.25 Australian Human Rights Education Fund the gift must be made after 24 September 2001 2.2.26 Aboriginal Education Council (N.S.W.) Incorporated the gift must be made after 6 May 2002 2.2.27 General Sir John Monash Foundation the gift must be made after 16 June 2002 2.2.28 Australian-American Educational Foundation the gift must be made after 30 April 2003 2.2.29 The Australian Literacy and Numeracy Foundation Limited the gift must be made after 11 October 2002 2.2.30 The Constitution Education Fund the gift must be made after 20 June 2003 2.2.31 Country Education Foundation of Australia Limited the gift must be made on or after 20 August 2003 2.2.32 Clontarf Foundation the gift must be made after 30 August 2004 2.2.33 International Specialised Skills Institute Incorporated the gift must be made after 11 August 2005 2.2.34 Yachad Accelerated Learning Project Limited the gift must be made after 29 June 2005 and before 1 July 2012 2.2.36 The Spirit of Australia Foundation the gift must be made after 10 September 2007 2.2.37 The Royal Institution of Australia Incorporated the gift must be made after 16 April 2009 2.2.38 One Laptop per Child Australia Ltd the gift must be made after 26 May 2010 and before 1 July 2012 2.2.39 The Charlie Perkins Scholarship Trust the gift must be made after 1 August 2010 and before 2 August 2013 2.2.40 Roberta Sykes Indigenous Education Foundation the gift must be made after 1 August 2010 and before 2 August 2013 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.30 Gifts that must be for certain purposes (1) You can deduct a gift that you make to: (a) a technical and further education institution covered by item 2.1.7 of the table in subsection 30-25(1); or (b) the Marcus Oldham Farm Management College; only if the gift is for: (c) purposes of the institution, or of the College, that have been declared by the * Education Minister to relate solely to tertiary education; or (d) the provision of facilities for the institution, or the College, if the Education Minister has declared that he or she is satisfied the facilities are to be used principally for such purposes. (2) A declaration under subsection (1) must be in writing, signed by the Minister. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.35 Gifts to a public fund established to benefit a rural school hostel building must satisfy certain requirements (1) You can deduct a gift that you make to a public fund covered by item 2.1.11 of the table in subsection 30-25(1) only if each requirement in this section is satisfied. (2) The rural school hostel building must be used, or going to be used, principally as residential accommodation for students: (a) whose usual place of residence is in a rural area; and (b) who are undertaking primary or secondary education, or special education programs for children with disabilities, at a school in the same area as the building. (3) The costs of the school must be solely or partly funded by the Commonwealth, a State or a Territory. (4) The residential accommodation must be provided by: (a) the Commonwealth, a State or a Territory; or (b) a public authority; or (c) a company that: (i) is not carried on for the purposes of profit or gain to its individual members; and (ii) is prohibited by its * constitution from making any distribution of money or property to its members. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.37 Scholarship etc. funds [see Note 4] For the purposes of item 2.1.13 of the table in subsection 30-25(1), a scholarship, bursary or prize is one to which this section applies if: (a) it may only be awarded to Australian citizens, or permanent residents of Australia, within the meaning of the Australian Citizenship Act 1948; and (b) it is open to individuals or groups of individuals throughout a region of at least 200,000 people, or throughout at least an entire State or Territory; and (c) it promotes recipients' education in either or both of the following: (i) * pre-school courses, * primary courses, * secondary courses or * tertiary courses; (ii) educational institutions overseas, by way of study of a component of a course covered by subparagraph (i); and (d) it is awarded on merit or for reasons of equity. Research INCOME TAX ASSESSMENT ACT 1997 - SECT 30.40 Research (1) This table sets out general categories of research recipients. Research--General Item Fund, authority or institution Special conditions 3.1.1 a university, college, institute, association or organisation which is an approved research institute for the purposes of section 73A (Expenditure on scientific research) of the Income Tax Assessment Act 1936 the gift must be made for purposes of scientific research in the field of natural or applied science (2) This table sets out specific research recipients. Research--Specific Item Fund, authority or institution Special conditions 3.2.1 the Centre for Independent Studies none 3.2.2 the Ian Clunies Ross Memorial Foundation none 3.2.4 The Menzies Research Centre Public Fund the gift must be made after 2 April 1998 3.2.5 The Sir Earl Page Memorial Trust the gift must be made after 6 May 2001 3.2.6 Research Australia Limited the gift must be made after 26 June 2001 3.2.7 The Page Research Centre Limited the gift must be made after 12 January 2005 3.2.8 The Chifley Research Centre Limited the gift must be made after 19 May 2005 3.2.9 Don Chipp Foundation Ltd the gift must be made after 26 June 2006 3.2.10 Lingiari Policy Centre the gift must be made after 25 July 2006 3.2.11 Grattan Institute the gift must be made after 4 March 2009 and before 5 March 2011 3.2.12 The Green Institute Limited the gift must be made after 23 June 2009 3.2.13 United States Studies Centre the gift must be made after 26 July 2009 Welfare and rights INCOME TAX ASSESSMENT ACT 1997 - SECT 30.45 Welfare and rights (1) This table sets out general categories of welfare and rights recipients. Welfare and rights--General Item Fund, authority or institution Special conditions 4.1.1 a public benevolent institution none 4.1.2 a public fund established before 23 October 1963 and maintained for the purpose of providing money for public benevolent institutions or for the establishment of public benevolent institutions none 4.1.3 a public fund established and maintained for the relief of persons in Australia who are in necessitous circumstances none 4.1.4 a public fund that, when the gift is made, is on the register of * harm prevention charities kept under Subdivision 30-EA the gift must be made after 30 June 2003 4.1.5 a public fund (including a public fund established and maintained by a public benevolent institution): (a) that is established for charitable purposes; and (b) that is established and maintained solely for providing money for the relief (including relief by way of assistance to re-establish a community) of people in Australia in distress as a result of a disaster to which subsection 30-45A(1) or 30-46(1) applies see sections 30-45A and 30-46 4.1.6 a charitable institution whose principal activity is one or both of these: (a) providing short-term direct care to animals (but not only native wildlife) that have been lost or mistreated or are without owners; (b) rehabilitating orphaned, sick or injured animals (but not only native wildlife) that have been lost or mistreated or are without owners none 4.1.7 a charitable institution that would be a public benevolent institution, but for one or both of these: (a) it also promotes the prevention or the control of diseases in human beings (but not as a principal activity); (b) it also promotes the prevention or the control of * behaviour that is harmful or abusive to human beings (but not as a principal activity) none Note: In determining whether the Australian Red Cross Society is a public benevolent institution or a charitable institution, see Part 1 of Schedule 6 to the Tax Laws Amendment (2009 Measures No. 5) Act 2009. (2) This table sets out specific welfare and rights recipients. Welfare and rights--Specific Item Fund, authority or institution Special conditions 4.2.1 Amnesty International Australia none 4.2.2 the Child Accident Prevention Foundation of Australia none 4.2.3 the National Foundation for Australian Women Limited none 4.2.4 the National Safety Council of Australia Limited none 4.2.6 the Royal Society for the Prevention of Cruelty to Animals New South Wales none 4.2.7 the Royal Society for the Prevention of Cruelty to Animals (Victoria) Inc. none 4.2.9 the Royal Society for the Prevention of Cruelty to Animals (South Australia) Incorporated none 4.2.10 the Royal Society for the Prevention of Cruelty to Animals Western Australia (Incorporated) none 4.2.11 the R.S.P.C.A. (Tasmania) Incorporated none 4.2.12 the Society for the Prevention of Cruelty to Animals (Northern Territory) none 4.2.13 the Royal Society for the Prevention of Cruelty to Animals (A.C.T.) Incorporated none 4.2.14 the R.S.P.C.A. Australia Incorporated none 4.2.19 Reconciliation Australia Limited the gift must be made after 6 December 2000 4.2.20 Royal Society for the Prevention of Cruelty to Animals, Queensland Incorporated the gift must be made after 22 December 1999 4.2.21 Crime Stoppers Western Australia Limited the gift must be made after 31 October 2002 4.2.22 New South Wales Crime Stoppers Limited the gift must be made after 31 October 2002 4.2.23 Crime Stoppers Tasmania the gift must be made after 28 November 2002 4.2.24 Crime Stoppers Queensland Limited the gift must be made after 23 January 2003 4.2.25 Crime Stoppers Australia Ltd the gift must be made after 4 June 2003 4.2.26 Alcohol Education and Rehabilitation Foundation Limited the gift must be made after 5 June 2003 4.2.27 Crime Stoppers South Australia Limited the gift must be made on or after 19 September 2003 4.2.28 International Social Service - Australian Branch the gift must be made after 17 March 2004 4.2.29 the Victorian Crime Stoppers Program the gift must be made after 22 April 2004 4.2.31 Crime Stoppers Northern Territory Program the gift must be made after 13 March 2005 4.2.31A ACT Region Crime Stoppers Limited the gift must be made after 12 February 2009 4.2.32 Kidsafe ACT (Inc.) the gift must be made after 2 August 2007 4.2.33 Kidsafe New South Wales (Inc.) the gift must be made after 2 August 2007 4.2.34 Kidsafe NT (Inc.) the gift must be made after 2 August 2007 4.2.35 Kidsafe Qld (Inc.) the gift must be made after 2 August 2007 4.2.36 Kidsafe SA Incorporated the gift must be made after 2 August 2007 4.2.37 Kidsafe Tasmania (Inc) the gift must be made after 2 August 2007 4.2.38 Kidsafe Vic (Inc.) the gift must be made after 2 August 2007 4.2.39 Kidsafe Western Australia (Inc) the gift must be made after 2 August 2007 4.2.40 Ian Thorpe's Fountain for youth Limited the gift must be made after 28 February 2008 4.2.41 2009 Victorian Bushfire Appeal Trust Account (established under section 19 of the Financial Management Act 1994 of Victoria) the gift must be made: (a) after 7 February 2009; and (b) before 6 February 2014 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.45A Australian disaster relief funds--declarations by Minister (1) For the purposes of item 4.1.5 of the table in subsection 30-45(1), an event is a disaster to which this subsection applies if the Minister has declared it to be a disaster. The Minister may do so if satisfied that: (a) it developed rapidly; and (b) it resulted in the death, serious injury or other physical suffering of a large number of people, or in widespread damage to property or the natural environment. (2) The Minister's declaration of an event as a disaster: (a) must be in writing; and (b) must specify the day (or the first day) of the event; and (c) must be published on the internet or by another method determined by the Minister. (3) The Minister's declaration of an event as a disaster is not a legislative instrument. (4) You can deduct a gift that you make to a public fund covered by item 4.1.5 of the table in subsection 30-45(1), in relation to a disaster to which subsection (1) of this section applies, only within the 2 years beginning on the day specified in the declaration as the day (or the first day) of the event for which the fund is to provide relief. Note: Public funds under item 4.1.5 of the table in subsection 30-45(1) are for disaster relief of people in Australia. Public funds may also be established for disaster relief of people in other countries. See items 9.1.1 (which is not limited to disaster relief) and 9.1.2 of the table in section 30-80. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.46 Australian disaster relief funds--declarations under State and Territory law (1) For the purposes of item 4.1.5 of the table in subsection 30-45(1), a disaster is one to which this subsection applies if: (a) it is declared to be a disaster, or it gives rise to a declaration of a state of emergency, by or with the approval of a Minister of a State or Territory under the law of the State or Territory; and (b) it developed rapidly; and (c) it resulted in the death, serious injury or other physical suffering of a large number of people, or in widespread damage to property or the natural environment; and (d) subsection 30-45A(1) does not apply to it. (2) You can deduct a gift that you make to a public fund covered by item 4.1.5 of the table in subsection 30-45(1), in relation to a disaster to which subsection (1) of this section applies, only within the 2 years beginning: (a) if the day (or the first day) on which the event occurred is specified in the declaration mentioned in paragraph (1)(a)--on that day; or (b) otherwise--on the day of the declaration. Note: Public funds under item 4.1.5 of the table in subsection 30-45(1) are for disaster relief of people in Australia. Public funds may also be established for disaster relief of people in other countries. See items 9.1.1 (which is not limited to disaster relief) and 9.1.2 of the table in section 30-80. Defence INCOME TAX ASSESSMENT ACT 1997 - SECT 30.50 Defence (1) This table sets out general categories of defence recipients. Defence--General Item Fund, authority or institution Special conditions 5.1.1 the Commonwealth or a State the gift must be made for purposes of defence 5.1.2 a public institution or public fund established and maintained for the comfort, recreation or welfare of members of the armed forces of any part of Her Majesty's dominions, or of any allied or other foreign force serving in association with Her Majesty's armed forces none 5.1.3 a public fund established and maintained solely for providing money to reconstruct, or make critical repairs to, a particular war memorial that: (a) is located in Australia; and (b) commemorates events in a conflict in which Australia was involved, or people who are mainly Australians and who participated on Australia's behalf in a conflict; and (c) is a focus for public commemoration of the events or people mentioned in paragraph (b); and (d) is solely or mainly used for that public commemoration the gift must be made within the 2 years beginning on the day on which: (a) the fund; or (b) if the fund is legally owned by an entity that is endorsed for the operation of the fund--the entity; is endorsed as a * deductible gift recipient under Subdivision 30-BA (2) This table sets out specific defence recipients. Defence--Specific Item Fund, authority or institution Special conditions 5.2.11 The RSL Foundation the gift must be made after 20 September 2000 5.2.26 C E W Bean Foundation the gift must be made after 14 November 2005 and before 15 November 2007 5.2.28 The Bathurst War Memorial Carillon Public Fund Trust the gift must be made after 2 August 2007 and before 3 August 2009 5.2.29 AE 2 Commemorative Foundation Ltd the gift must be made after 28 February 2008 and before 1 March 2010 5.2.30 Memorials Development Committee Ltd the gift must be made after 4 September 2007 and before 1 July 2010 Environment INCOME TAX ASSESSMENT ACT 1997 - SECT 30.55 The environment (1) This table sets out general categories of environment recipients. The environment--General Item Fund, authority or institution Special conditions 6.1.1 a public fund that, when the gift is made, is on the register of * environmental organisations kept under Subdivision 30-E none (2) This table sets out specific environment recipients. The environment--Specific Item Fund, authority or institution Special conditions 6.2.1 the Australian Conservation Foundation Incorporated see section 30-60 6.2.2 Greening Australia Limited see section 30-60 6.2.3 Landcare Australia Limited see section 30-60 6.2.4 the National Parks Association of New South Wales see section 30-60 6.2.5 the Victorian National Parks Association Incorporated see section 30-60 6.2.6 Trust for Nature (Victoria) see section 30-60 6.2.7 the National Parks Association of Queensland see section 30-60 6.2.8 The Nature Conservation Society of South Australia Incorporated see section 30-60 6.2.9 the Nature Foundation SA Incorporated see section 30-60 6.2.10 the Western Australian National Parks and Reserves Association Incorporated see section 30-60 6.2.11 the Tasmanian Conservation Trust Incorporated see section 30-60 6.2.12 the National Parks Association of the Australian Capital Territory Incorporated see section 30-60 6.2.13 the National Trust of Australia (New South Wales) none 6.2.14 the National Trust of Australia (Victoria) none 6.2.15 The National Trust of Queensland none 6.2.16 The National Trust of South Australia none 6.2.17 The National Trust of Australia (W.A.) none 6.2.18 the National Trust of Australia (Tasmania) none 6.2.19 The National Trust of Australia (Northern Territory) none 6.2.20 the National Trust of Australia (A.C.T.) none 6.2.21 the Australian Council of National Trusts none 6.2.22 the World Wide Fund for Nature see section 30-60 6.2.23 Mawson's Huts Foundation Limited the gift must be made after 17 March 1997 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.60 Gifts to a National Parks body or conservation body must satisfy certain requirements You can deduct a gift that you make to: (a) an environmental institution covered by any of the items 6.2.1 to 6.2.12 of the table in subsection 30-55(2); or (b) the World Wide Fund for Nature; only if, at the time of making the gift: (c) the institution or Fund has agreed to give the * Environment Secretary, within a reasonable period after the end of the income year in which you made the gift, statistical information about gifts made to the institution or Fund during that income year; and (d) the institution or Fund has a policy of not acting as a mere conduit for the donation of money or property to other institutions, bodies or persons. Industry, trade and design INCOME TAX ASSESSMENT ACT 1997 - SECT 30.65 Industry, trade and design This table sets out specific industry, trade and design recipients. Industry, trade and design--Specific Item Fund, authority or institution Special conditions 7.2.3 WorldSkills Australia none 7.2.5 Australian Business Week Limited the gift must be made after 8 December 2003 The family INCOME TAX ASSESSMENT ACT 1997 - SECT 30.70 The family (1) This table sets out general categories of family recipients. The family--General Item Fund, authority or institution Special conditions 8.1.1 a public fund established and maintained by a * non-profit company solely for the purpose of providing money to be used in giving or providing marriage education under the Marriage Act 1961 to individuals in Australia see section 30-75 8.1.2 a public fund: (a) that is established and maintained by a * non-profit company which receives funding from the Commonwealth to provide family counselling or family dispute resolution within the meaning of the Family Law Act 1975; and (b) that is established and maintained solely for the purpose of providing money to be used in providing family counselling or family dispute resolution within the meaning of the Family Law Act 1975 to individuals in Australia none (2) This table sets out specific family recipients. The family--Specific Item Fund, authority or institution Special conditions 8.2.3 Australian Breastfeeding Association the gift must be made after 31 July 2001 8.2.4 Playgroup NSW (Inc). the gift must be made after 14 April 2005 8.2.5 Playgroup WA (Inc) the gift must be made after 13 March 2005 8.2.6 Playgroup Queensland Incorporated the gift must be made after 14 April 2005 8.2.7 Playgroup Tasmania Inc. the gift must be made after 14 April 2005 8.2.8 Playgroup Association Northern Territory Incorporated the gift must be made after 24 May 2005 8.2.9 ACT Playgroups Association Incorporated the gift must be made after 14 April 2005 8.2.10 Playgroup Victoria Inc. the gift must be made after 23 February 2006 8.2.11 Playgroup SA Inc the gift must be made after 5 August 2006 8.2.12 Playgroup Australia Incorporated the gift must be made after 2 August 2006 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.75 Marriage education organisations must be approved You can deduct a gift that you make to a public fund covered by item 8.1.1 of the table in subsection 30-70(1) only if the company has been approved by the * Families Minister under section 9C of the Marriage Act 1961. International affairs INCOME TAX ASSESSMENT ACT 1997 - SECT 30.80 International affairs (1) This table sets out general categories of international affairs recipients. International affairs--General Item Fund, authority or institution Special conditions 9.1.1 a public fund declared by the Treasurer to be a developing country relief fund see section 30-85 9.1.2 a public fund established and maintained by a public benevolent institution solely for providing money for the relief (including relief by way of assistance to re-establish a community) of people in a country other than: (a) Australia; and (b) a country declared by the * Foreign Affairs Minister to be a developing country; who are in distress as a result of a disaster to which subsection 30-86(1) applies see section 30-86 (2) This table sets out specific international affairs recipients. International affairs--Specific Item Fund, authority or institution Special conditions 9.2.1 the Australian Institute of International Affairs none 9.2.3 The Foundation for Development Cooperation Ltd none 9.2.4 Australian American Education Leadership Foundation Limited the gift must be made after 26 January 1998 9.2.5 Sydney Talmudical College Association Refugees Overseas Aid Fund the gift must be made after 29 January 1998 9.2.6 United Israel Appeal Refugee Relief Fund Limited the gift must be made after 29 January 1998 9.2.7 the Asia Society AustralAsia Centre the gift must be made after 6 December 1998 9.2.8 The Global Foundation the gift must be made after 2 November 1999 9.2.10 Australia for UNHCR the gift must be made after 27 June 2007 and before 28 June 2012 9.2.12 Lowy Institute for International Policy the gift must be made after 13 August 2003 9.2.13 The Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Limited the gift must be made after 7 November 2004 and before 1 January 2010 9.2.17 Xanana Vocational Education Trust the gift must be made after 20 July 2005 and before 1 January 2011 9.2.18 American Australian Association Limited the gift must be made after 13 November 2006 9.2.19 WHEELCHAIRS FOR KIDS Incorporated the gift must be made after 28 February 2008 and before 1 March 2010 9.2.21 Diplomacy Training Program Limited the gift must be made after 16 April 2009 9.2.22 Sichuan Earthquake Surviving Children's Education Fund the gift must be made after 11 May 2008 and before 13 May 2010 9.2.23 Bali Peace Park Association Inc the gift must be: (a) made after 15 December 2009 and before 17 December 2011; and (b) used for the purpose of establishing the Bali Peace Park 9.2.24 the Christchurch Earthquake Appeal Trust of New Zealand the gift must be made after 21 March 2011 and before 22 March 2013 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.85 Developing country relief funds (1) You can deduct a gift that you make to a public fund covered by item 9.1.1 of the table in subsection 30-80(1) only if the declaration is in force at the time you make the gift. (2) The Treasurer may, by notice in the Gazette, declare a public fund to be a developing country relief fund if he or she is satisfied that the fund: (a) has been established by an organisation declared by the * Foreign Affairs Minister to be an approved organisation; and (b) is solely for the relief of people in a country declared by the Foreign Affairs Minister to be a developing country. (3) The notice must specify the day on which it has effect. It cannot have effect earlier than the day on which it is published in the Gazette. (4) The Treasurer may, by notice in the Gazette, revoke a declaration that a public fund is a developing country relief fund. The notice must specify the day on which it has effect. It cannot have effect earlier than the day on which it is published in the Gazette. (5) A declaration by the * Foreign Affairs Minister under this section must be in writing, signed by the Minister. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.86 Developed country disaster relief funds (1) For the purposes of item 9.1.2 of the table in subsection 30-80(1), a disaster is one to which this subsection applies if the Minister has recognised it as a disaster. The Minister may do so if satisfied that: (a) it developed rapidly; and (b) it resulted in the death, serious injury or other physical suffering of a large number of people, or in widespread damage to property or the natural environment. (2) The Minister's recognition of an event as a disaster: (a) must be in writing; and (b) must specify the day (or the first day) of the event; and (c) must be published on the internet or by another method determined by the Minister. (3) The Minister's recognition of an event as a disaster is not a legislative instrument. (4) You can deduct a gift that you make to a public fund covered by item 9.1.2 of the table in subsection 30-80(1) only within the 2 years beginning on the day specified in the recognition as the day (or the first day) of the event for which the fund is to provide relief. Note: A public fund may also be established for disaster relief of people in Australia (see item 4.1.5 of the table in section 30-45). Sports and recreation INCOME TAX ASSESSMENT ACT 1997 - SECT 30.90 Sports and recreation This table sets out specific sports and recreation recipients. Sports and recreation--Specific Item Fund, authority or institution Special conditions 10.2.1 the Australian Sports Foundation none 10.2.2 Girl Guides Australia none 10.2.3 an institution that is known as a State or Territory branch of Girl Guides Australia none 10.2.4 the Scout Association of Australia none 10.2.5 an institution that is known as a State or Territory branch of the Scout Association of Australia none 10.2.7 The Bradman Memorial Fund the gift must be made after 24 February 2001 10.2.8 Amy Gillett Foundation the gift must be made after 13 September 2007 Philanthropic trusts INCOME TAX ASSESSMENT ACT 1997 - SECT 30.95 Philanthropic trusts This table sets out specific philanthropic trusts. Philanthropic trusts--Specific Item Fund, authority or institution Special conditions 11.2.1 the Connellan Airways Trust none 11.2.2 The Friends of the Duke of Edinburgh's Award in Australia Incorporated none 11.2.4 the Playford Memorial Trust none 11.2.5 The Sir Robert Menzies Memorial Foundation Limited none 11.2.7 the Winston Churchill Memorial Trust none 11.2.8 The Foundation for Young Australians the gift must be made after 6 May 2001 11.2.9 Visy Cares the gift must be made after 19 June 2001 Cultural organisations INCOME TAX ASSESSMENT ACT 1997 - SECT 30.100 Cultural organisations (1) This table sets out general categories of cultural recipients. Cultural organisations--General Item Fund, authority or institution Special conditions 12.1.1 a public fund that, when the gift is made, is on the register of * cultural organisations kept under Subdivision 30-F none 12.1.2 a public library none 12.1.3 a public museum none 12.1.4 a public art gallery none 12.1.5 an institution consisting of a public library, public museum and public art gallery or of any 2 of them none (2) This table sets out specific cultural recipients. Cultural organisations--Specific Item Fund, authority or institution Special conditions 12.2.1 The Australiana Fund none 12.2.2 Australian Business Arts Foundation Ltd. the gift must be made after 8 November 1996 12.2.3 The Ranfurly Library Service Incorporated the gift must be made after 2 May 2006 Fire and emergency services INCOME TAX ASSESSMENT ACT 1997 - SECT 30.102 Fire and emergency services This table sets out general categories of fire and emergency services recipients. Fire and emergency services--General Item Fund, authority or institution Special conditions 12A.1.1 a * government entity that has statutory responsibility for the coordination of volunteer fire brigades or State Emergency Services the gift or contribution must be made for the purposes of supporting the coordination of volunteer fire brigades or State Emergency Services 12A.1.2 a public fund which satisfies all of the following requirements: (a) the fund is established and maintained by a * government entity covered by item 12A.1.1; (b) the fund is established and maintained solely for the purpose of supporting the volunteer based emergency service activities of non-profit entities or of government entities; (c) the principal activity of the entities mentioned in paragraph (b) is the provision of volunteer based emergency services that are regulated by a * State law or a *Territory law none 12A.1.3 a public fund which satisfies all of the following requirements: (a) the fund is established and maintained by a non-profit entity or * government entity; none (b) the principal activity of the entity is the provision of volunteer based emergency services that are regulated by a * State law or a *Territory law; (c) the fund is established and maintained solely for the purpose of supporting the volunteer based emergency service activities of the entity Other recipients INCOME TAX ASSESSMENT ACT 1997 - SECT 30.105 Other recipients This table sets out specific other recipients. Other recipients--specific Item Fund, authority or institution Special conditions 13.2.1 the Council for Jewish Community Security the gift must be made after 9 August 2007 13.2.2 the Foundation for Rural and Regional Renewal Public Fund the gift must be made after 28 March 2000 13.2.3 Young Endeavour Youth Scheme Public Fund the gift must be made after 24 September 2001 13.2.3A Leeuwin Ocean Adventure Foundation Limited the gift must be made after 16 April 2009 13.2.7 Lord Somers Camp and Power House the gift must be made after 4 March 2004 13.2.8 St George's Cathedral Restoration Fund the gift must be made after 27 September 2004 and before 1 January 2011 13.2.14A Bunbury Diocese Cathedral Rebuilding Fund the gift must be made after 18 December 2006 and before 19 December 2010 13.2.15 Australian Peacekeeping Memorial Project Incorporated the gift must be made after 29 April 2007 and before 1 January 2009 13.2.16 Social Ventures Australia Limited the gift must be made after 3 May 2007 13.2.17 PWR Melbourne 2009 Limited the gift must be made after 2 February 2009 and before 1 January 2010 13.2.18 Mary MacKillop Canonisation Gift Fund the gift must be made after 4 August 2010 and before 1 July 2011 Guide to Subdivision 30-BA INCOME TAX ASSESSMENT ACT 1997 - SECT 30.115 What this Subdivision is about This Subdivision sets out rules about endorsement of entities and government entities as deductible gift recipients. Endorsement of an entity described (except by name) in Subdivision 30-A, 30-B or 30-D lets you deduct a gift you make to a fund, authority or institution that is, or is operated by, the entity. Table of sections Endorsement as a deductible gift recipient 30-120 Endorsement by Commissioner 30-125 Entitlement to endorsement 30-130 Maintaining a gift fund Government entities treated like entities 30-180 How this Subdivision applies to government entities Endorsement as a deductible gift recipient INCOME TAX ASSESSMENT ACT 1997 - SECT 30.120 Endorsement by Commissioner If an entity applies for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953, the Commissioner must endorse the entity: (a) as a * deductible gift recipient, if the entity is entitled to be endorsed as a deductible gift recipient; or (b) as a * deductible gift recipient for the operation of a fund, authority or institution, if the entity is entitled to be endorsed as a deductible gift recipient for the operation of the fund, authority or institution. Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.125 Entitlement to endorsement Endorsement of an entity that is a fund, authority or institution (1) An entity is entitled to be endorsed as a * deductible gift recipient if: (a) the entity has an * ABN; and (b) the entity is a fund, authority or institution that: (i) is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and (ii) is not described by name in Subdivision 30-B if it is described in item 1 of that table; and (iii) meets the relevant conditions (if any) identified in the column headed "Special conditions" of the item of that table in which it is described; and (c) the entity meets the requirements of subsection (6), unless: (i) the entity is established by an Act; and (ii) the Act (or another Act) does not provide for the winding up or termination of the entity; and (d) in the case of an * ancillary fund: (i) the fund complies with the rules in the * public ancillary fund guidelines or the * private ancillary fund guidelines (whichever are applicable); and (ii) all of the trustees of the fund comply with those rules. Endorsement of an entity for operating a fund, authority etc. (2) An entity is entitled to be endorsed as a * deductible gift recipient for the operation of a fund, authority or institution that is described (but not by name) in item 1, 2 or 4 of the table in section 30-15 and is not described by name in Subdivision 30-B if: (a) the entity has an * ABN; and (b) the entity: (i) legally owns the fund; or (ii) includes the authority or institution; and (c) the fund, authority or institution meets the relevant conditions (if any) identified in the column headed "Special conditions" of that item; and (d) the entity meets the requirements of subsection (6), unless: (i) the entity is established by an Act; and (ii) the Act (or another Act) does not provide for the winding up or termination of the entity; and (e) the entity meets the requirements of section 30-130, unless the entity is endorsed as a deductible gift recipient under paragraph 30-120(a). Relevant special conditions in table in section 30-15 (3) To avoid doubt, a condition requiring the fund, authority or institution to meet the requirements of section 30-17 is not a relevant condition for the purposes of subparagraph (1)(b)(iii) or paragraph (2)(c). Note: Section 30-17 requires the entity to be endorsed under this Subdivision as a deductible gift recipient. Transfer of assets from fund, authority or institution (6) A law (outside this Subdivision), a document constituting the entity or rules governing the entity's activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division: (a) any surplus assets of the gift fund (see section 30-130); or (b) if the entity is not required by this section to meet the requirements of section 30-130--any surplus: (i) gifts of money or property for the principal purpose of the fund, authority or institution; and (ii) contributions described in item 7 or 8 of the table in section 30-15 in relation to a * fund-raising event held for that purpose; and (iii) money received by the entity because of such gifts or contributions. Events requiring transfer (7) The events are: (a) the winding up of the fund, authority or institution; and (b) if the entity is endorsed because of a fund, authority or institution--the revocation of the entity's endorsement under this Subdivision relating to the fund, authority or institution. Note 1: There are 2 ways an entity can be endorsed because of a fund, authority or institution. An entity can be endorsed either because it is a fund, authority or institution or because it operates a fund, authority or institution. Note 2: Section 426-55 in Schedule 1 to the Taxation Administration Act 1953 deals with revocation of endorsement. Note 3: The entity is also required to keep appropriate records: see section 382-15 of the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.130 Maintaining a gift fund (1) The entity must maintain for the principal purpose of the fund, authority or institution a fund (the gift fund): (a) to which gifts of money or property for that purpose are to be made; and (b) to which contributions described in item 7 or 8 of the table in section 30-15 in relation to a * fund-raising event held for that purpose are to be made; and (c) to which any money received by the entity because of such gifts or contributions is to be credited; and (d) that does not receive any other money or property. (2) The entity must use the gift fund only for the principal purpose of the fund, authority or institution. Exception--only one gift fund required per entity (3) An entity that operates 2 or more funds, authorities or institutions also meets the requirements of this section for 2 or more of those funds, authorities or institutions by maintaining a single gift fund if: (a) the gift fund meets the requirements in paragraphs (1)(a), (b) and (c) in respect of each of the funds, authorities or institutions for which the gift fund is maintained; and (b) the gift fund does not receive any other money or property. (4) The entity must use a gift or contribution made to the fund and any money credited to the fund only for the principal purpose of the fund, authority or institution to which the gift, contribution or money relates. Note: The entity is also required to keep appropriate records for each of the funds, authorities or institutions: see section 382-15 of the Taxation Administration Act 1953. Government entities treated like entities INCOME TAX ASSESSMENT ACT 1997 - SECT 30.180 How this Subdivision applies to government entities (1) The other sections of this Subdivision apply in relation to a * government entity in the same way as they apply in relation to an entity. (2) Subparagraph 30-125(2)(b)(i) (as applied by this section) operates as if it referred to the * government entity consisting of persons, one or more of whom controlled the fund (instead of referring to the entity legally owning the fund). Table of sections Valuation requirements 30-200 Getting written valuations 30-205 Proceeds of the sale would have been assessable 30-210 Approved valuers 30-212 Valuations by the Commissioner Working out the amount you can deduct for a gift of property 30-215 How much you can deduct 30-220 Reducing the amount you can deduct Joint ownership of property 30-225 Gift of property by joint owners Valuation requirements INCOME TAX ASSESSMENT ACT 1997 - SECT 30.200 Getting written valuations (1) You satisfy the valuation requirements if you get 2 or more written valuations of the gift you made. Note 1: In most cases, you need to get these written valuations to be able to deduct a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15. Note 2: You do not need to get written valuations in the circumstances set out in section 30-205. (2) The valuations must be by different individuals, each of whom is an approved valuer of the kind of property you are giving away. Note: Section 30-210 deals with how an individual becomes an approved valuer. (3) Each valuation must state the amount that, in the opinion of the valuer, was: (a) the * GST inclusive market value of the property on the day you made the gift; or (b) the * GST inclusive market value of the property on the day the valuation was made. (4) If a valuation states the * GST inclusive market value of the property on the day the valuation was made, it must have been made within 90 days before or after the gift was made. However, the Commissioner may allow a longer period than this. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.205 Proceeds of the sale would have been assessable (1) You do not need to get written valuations of the gift you made if: (a) no amount is included in your assessable income in respect of the gift you made; but (b) an amount would have been included in your assessable income if you had sold the property instead of making the gift. (2) However, this section does not apply if, apart from the operation of subsection 118-60(2), an amount would have been included in your assessable income in respect of the gift you made. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.210 Approved valuers (1) The * Arts Secretary may approve an individual as a valuer of a particular kind of property. The approval must be in writing, signed by the Secretary. (2) The Secretary must, in deciding whether to approve an individual, have regard to: (a) the individual's qualifications, experience and knowledge in valuing that kind of property; and (b) the individual's knowledge of the current * GST inclusive market value of that kind of property; and (c) the individual's standing in the professional community. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.212 Valuations by the Commissioner (1) If you make a gift or contribution that is covered by a provision of this Division that refers to the value of property as determined by the Commissioner, you must seek the valuation from the Commissioner. (2) The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation. Working out the amount you can deduct for a gift of property INCOME TAX ASSESSMENT ACT 1997 - SECT 30.215 How much you can deduct (1) This section contains the rules for working out how much you can deduct for a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15. (2) The general rule is that the amount you can deduct for a gift of this kind is the average of the * GST inclusive market values (as reduced under subsection 30-15(3) if that subsection applies) specified in the written valuations you got from the approved valuers. Note: In some situations you must reduce the amount you can deduct: see section 30-220. (3) The exceptions to the general rule are set out in this table: Amount you can deduct for a gift of property Item In this case: The amount you can deduct is: 1 Section 30-205 (which is about the proceeds of the sale being assessable) applies, and you bought the property the amount you paid for the property, reduced by the amount of any * input tax credit to which you are or were entitled for your * acquisition of the property 2 Section 30-205 (which is about the proceeds of the sale being assessable) applies, and you created or produced the property so much of the cost of creation or production as you would have been able to deduct if you had sold the property, reduced by the amount of any * input tax credit to which you are or were entitled for your * acquisitions to the extent that they were made for the purpose of creating or producing the property 3 Neither of cases 1 and 2 applies, and you acquired the property: (a) less than one year before making the gift (otherwise than by inheriting it); or (b) for the purpose of giving it away; or (c) subject to an * arrangement that the property would be given away the lesser of the amount you paid for the property and: (a) if the average of the written valuations you got fairly represents the * GST inclusive market value (as reduced under subsection (4) if that subsection applies) of the property on the day you made the gift--that average; or (b) if it does not--the * GST inclusive market value (as reduced under subsection (4) if that subsection applies) of the property on the day you made the gift 4 None of cases 1 to 3 applies, and the average of the written valuations you got does not fairly represent the * market value of the property on the day you made the gift the * GST inclusive market value (as reduced under subsection (4) if that subsection applies) of the property on the day you made the gift (4) For the purposes of items 3 and 4 of the table in subsection (3), the * GST inclusive market values of the property in question are reduced by 1 /11 if you would have been entitled to an *input tax credit if: (a) you had * acquired the property at the time you made the gift; and (b) your acquisition had been for a * creditable purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.220 Reducing the amount you can deduct (1) The amount you can deduct is reduced by a reasonable amount if: (a) the terms and conditions on which the gift is made are such that the recipient: (i) does not receive immediate custody and control of the property; or (ii) does not have the unconditional right to retain custody and control of the property in perpetuity; or (iii) does not obtain an immediate, indefeasible and unencumbered legal and equitable title to the property; or (b) the custody, control or use of the property by the recipient is affected by an * arrangement entered into in respect of the making of the gift. (2) In deciding what is a reasonable amount, have regard to the effect of those terms and conditions, or that * arrangement, on the * GST inclusive market value of the gift. Joint ownership of property INCOME TAX ASSESSMENT ACT 1997 - SECT 30.225 Gift of property by joint owners If: (a) you own property jointly with one or more other entities; and (b) you and the other entities make a gift of the property; and (c) you would have been able to deduct the gift under section 30-15 because of item 4, 5 or 6 of the table in that section if you had made a gift of the property as sole owner of it; you can deduct so much of the gift as is reasonable, having regard to your interest in the property. Guide to Subdivision 30-CA INCOME TAX ASSESSMENT ACT 1997 - SECT 30.226 What this Subdivision is about An entity must ensure certain details must appear on a receipt it issues for a gift that: (a) is made to the entity or a fund, authority or institution it operates; and (b) is of a kind that the giver can deduct under Subdivision 30-A. If the entity has an ABN, the Australian Business Registrar must state in the Australian Business Register that the entity is a deductible gift recipient. Table of sections Requirements 30-227 Entities to which this Subdivision applies 30-228 Content of receipt for gift 30-229 Australian Business Register must show deductibility of gifts to deductible gift recipient Requirements INCOME TAX ASSESSMENT ACT 1997 - SECT 30.227 Entities to which this Subdivision applies (1) This Subdivision sets out requirements relating to a * deductible gift recipient. (2) A deductible gift recipient is an entity or * government entity that: (a) is a fund, authority or institution described in item 1, 2, 4, 5 or 6 of the table in section 30-15 and is: (i) endorsed under Subdivision 30-BA as a deductible gift recipient; or (ii) mentioned by name in that table or in Subdivision 30-B; or (b) is endorsed as a deductible gift recipient for the operation of a fund, authority or institution described in item 1, 2 or 4 of the table in section 30-15. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.228 Content of receipt for gift or contribution (1) If a * deductible gift recipient issues a receipt for a gift described in the relevant item of the table in section 30-15 to the fund, authority or institution, the deductible gift recipient must ensure that the receipt states: (a) the name of the fund, authority or institution; and (b) the * ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a gift. Note: If the deductible gift recipient is endorsed as a deductible gift recipient and it contravenes this section, the Commissioner may revoke its endorsement: see section 426-55 in Schedule 1 to the Taxation Administration Act 1953. (2) If a * deductible gift recipient issues a receipt for a contribution described in item 7 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states: (a) the name of the deductible gift recipient; and (b) the * ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a contribution made in return for a right to attend, or participate in, a specified * fund-raising event; and (d) if the contribution is money--the amount of the contribution; and (e) the amount of the * GST inclusive market value, on the day the contribution was made, of the right to attend, or participate in, the fund-raising event. (3) For the purposes of paragraph (2)(e), in working out the * GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money. (4) If a * deductible gift recipient issues a receipt for a contribution described in item 8 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states: (a) the name of the deductible gift recipient; and (b) the * ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a contribution made by way of consideration for the supply of goods or services; and (d) the fact that the contribution was made because the contributor was the successful bidder at an auction that: (i) was a specified * fund-raising event; or (ii) was held at a specified fund-raising event; and (e) if the contribution is money--the amount of the contribution; and (f) the * GST inclusive market value, on the day the contribution was made, of the goods or services. (5) For the purposes of paragraph (4)(f), in working out the * GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.229 Australian Business Register must show deductibility of gifts to deductible gift recipient (1) If a * deductible gift recipient has an *ABN, the *Australian Business Registrar must enter in the * Australian Business Register in relation to the deductible gift recipient a statement that it is a deductible gift recipient for a specified period. Note 1: An entry (or lack of entry) of a statement required by this section does not affect whether you can deduct a gift to the fund, authority or institution. Note 2: This section will apply to all entities and government entities that are endorsed as deductible gift recipients under Subdivision 30-BA, because they must have ABNs to be endorsed. It will also apply to other entities described or named in Subdivision 30-A if they have ABNs. (2) If the * deductible gift recipient is a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution, the statement must name the fund, authority or institution. (2A) If: (a) the * deductible gift recipient is: (i) a fund, authority or institution; or (ii) a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution; and (b) the fund, authority or institution is covered by item 1, 2 or 4 of the table in section 30-15; the statement must specify that the fund, authority or institution is covered by that item. (3) The * Australian Business Registrar may remove the statement from the * Australian Business Register after the end of the period. (4) The * Australian Business Registrar must take reasonable steps to ensure that a statement appearing in the * Australian Business Register under this section is true. For this purpose, the Registrar may: (a) change the statement; or (b) remove the statement from the Register if the statement is not true; or (c) remove the statement from the Register and enter another statement in the Register under this section. Table of sections 30-230 Testamentary gifts of property 30-235 Getting a certificate 30-240 Limit on total value of gifts for an income year INCOME TAX ASSESSMENT ACT 1997 - SECT 30.230 Testamentary gifts of property (1) A testamentary gift of property (except an estate or interest in land or in a building or part of a building) that you make under the Cultural Bequests Program is deductible for the income year in which you die. Note: The trustee of your estate can claim the deduction in the income tax return lodged for you that covers the period from the start of the income year to the day you die. (2) The recipient of the gift must be: (a) The Australiana Fund; or (b) a public library in Australia; or (c) a public museum in Australia; or (d) a public art gallery in Australia; or (e) an institution in Australia consisting of a public library, a public museum and a public art gallery or any 2 of them. (2A) When you die, one of the following requirements must be met: (a) the recipient must be endorsed under Subdivision 30-BA as a deductible gift recipient; (b) there must be an entity endorsed under Subdivision 30-BA as a * deductible gift recipient for the operation of the recipient institution. This subsection does not apply if the recipient is The Australiana Fund. (3) The property must be given to, and accepted by, the recipient for inclusion in a collection it is maintaining or establishing. (4) The value of the gift must be $2 or more. (5) When you die, there must be in force a certificate from the * Arts Minister: (a) approving the gift; and (b) specifying the value of the gift. (6) If: (a) you die before the last day of an income year; and (b) section 26-55 (which is about a limit on deductions) prevents the whole or a part of the gift from being deductible in the * income tax return lodged for you for that income year; the trustee of your estate can claim the whole or part as a deduction in the trust's income tax return for that income year. Note: The trust's income tax return covers the period from the day you die to the end of the income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.235 Getting a certificate (1) You get a certificate by making a written application for one to the * Arts Minister. (2) The Minister must decide your application in accordance with written guidelines made by the Minister under this section. (3) The guidelines may require the Minister to decide an application having regard to: (a) specified criteria; or (b) recommendations of particular bodies. (4) If the Minister approves your gift, he or she must give you a certificate: (a) approving the gift; and (b) specifying the value of the gift; and (c) setting out any other information that the Commissioner requires. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.240 Limit on total value of gifts for an income year The total value of all gifts approved by the * Arts Minister for an income year cannot exceed an amount that the Minister determines in writing. The Minister must determine this amount before approving any gifts for that income year. Guide to Subdivision 30-DA INCOME TAX ASSESSMENT ACT 1997 - SECT 30.241 What this Subdivision is about Generally, you can deduct certain contributions and gifts to political parties, independent candidates and members. Contributions and gifts must be at least $2 and there is a limit on the total amount that you can deduct. Table of sections Operative provisions 30-242 Deduction for political contributions and gifts 30-243 Amount of the deduction 30-244 When an individual is an independent candidate 30-245 When an individual is an independent member Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 30.242 Deduction for political contributions and gifts (1) You can deduct any of the following for the income year in which they are made: (a) a contribution or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation; (b) a contribution or gift to an individual when the individual is an * independent candidate for a Commonwealth, State, Northern Territory or Australian Capital Territory election; (c) a contribution or gift to an individual who is, or was, an * independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory. (2) The contribution or gift must be of: (a) money; or (b) property that you purchased during the 12 months before making the contribution or gift. (3) The value of the contribution or gift must be at least $2. (3A) You can deduct the contribution or gift only if: (a) you are an individual; and (b) you do not make the gift or contribution in the course of * carrying on a *business. (4) You cannot deduct a testamentary contribution or gift under this Subdivision. (5) A contribution or gift to an individual who is, or was, an * independent member must be made: (a) when the individual is an independent member; or (b) if the individual ceases to be an independent member because: (i) a Parliament, a House of a Parliament or a Legislative Assembly is dissolved or has reached its maximum duration; or (ii) the individual comes up for election; after the individual ceases to be a member but before candidates for the resulting election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.243 Amount of the deduction (1) If the contribution or gift is money, the amount of the deduction is the amount of money. (2) If the contribution or gift is property, the amount of the deduction is the lesser of: (a) the market value of the property on the day that you made the contribution or gift; and (b) the amount that you paid for the property. $1,500 limit on deductions (3) You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to political parties. (4) You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to * independent candidates or * independent members. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.244 When an individual is an independent candidate (1) An individual is an independent candidate if: (a) the individual is a candidate in an election (including an election that is later declared void) for members of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory; and (b) the individual's candidature is not endorsed by a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation. (2) However, an individual does not start being an * independent candidate until the candidates for the election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. (3) An individual stops being an * independent candidate when the result of the election is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. (4) If: (a) the election is taken to have wholly failed under the relevant electoral legislation; and (b) the result of the election has not been declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation; the individual stops being an * independent candidate in that election when candidates for the replacement election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.245 When an individual is an independent member (1) An individual is an independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory if the individual: (a) is a member of that Parliament or Legislative Assembly; and (b) the individual is not a member of a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation. (2) An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member of the Parliament or Legislative Assembly when the individual's election as a member is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. Guide to Subdivision 30-DB INCOME TAX ASSESSMENT ACT 1997 - SECT 30.246 What this Subdivision is about This Subdivision allows you to elect to spread deductions for certain gifts and covenants over up to 5 income years. There are some different requirements for environmental, heritage and cultural property gifts and conservation covenants. Table of sections Operative provisions 30-247 Gifts and covenants for which elections can be made 30-248 Making an election 30-249 Effect of election 30-249A Requirements--environmental property gifts 30-249B Requirements--heritage property gifts 30-249C Requirements--certain cultural property gifts 30-249D Requirements--conservation covenants Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 30.247 Gifts and covenants for which elections can be made (1) An election under this Subdivision may be made for a gift, made on or after 1 July 2003, that is: (a) a gift of: (i) money; or (ii) property valued by the Commissioner at more than $5,000; made to a fund, authority or institution covered by item 1 or 2 of the table in section 30-15; or (b) a gift that is covered by item 4, 5 or 6 of the table in section 30-15. (2) An election under this Subdivision may also be made for entering into a * conservation covenant, under Division 31, on or after 1 July 2003. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.248 Making an election (1) If you can deduct an amount: (a) under this Division for a gift covered by subsection 30-247(1); or (b) under Division 31 for entering into a * conservation covenant covered by subsection 30-247(2); you may make a written election to spread that deduction over the current income year and up to 4 of the immediately following income years. (2) In the election, you must specify the percentage (if any) of the deduction that you will deduct in each of the income years. (3) You must make the election before you lodge your * income tax return for the income year in which you made the gift or entered into the covenant. (4) You may vary an election at any time. However, the variation can only change the percentage that you will deduct in respect of income years for which you have not yet lodged an * income tax return. (5) Unless section 30-249A, 30-249B or 30-249C applies, the election and any variation must be in the * approved form. Note: Sections 30-249A, 30-249B and 30-249C provide for the form of elections and variations for gifts covered by those sections. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.249 Effect of election (1) In each of the income years you specified in the election, you can deduct the amount corresponding to the percentage you specified for that year. (2) You cannot deduct the amount that you otherwise would have been able to deduct for the gift in the income year in which you made the gift or entered into the covenant. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.249A Requirements--environmental property gifts (1) This section applies if you make an election for a gift of property made to a fund, authority or institution covered by section 30-55. (2) You must give a copy of the election to the * Environment Secretary before you lodge your * income tax return for the income year in which you made the gift. (3) If you vary the election, you must give a copy of the variation to the * Environment Secretary before you lodge your *income tax return for the first income year to which the variation applies. (4) The election and any variation must be in a form approved in writing by the * Environment Secretary. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.249B Requirements--heritage property gifts (1) This section applies if you make an election for a gift of property made to a fund, authority or institution covered by item 6 of the table in section 30-15. (2) You must give a copy of the election to the * Heritage Secretary before you lodge your * income tax return for the income year in which you made the gift. (3) If you vary the election, you must give a copy of the variation to the * Heritage Secretary before you lodge your *income tax return for the first income year to which the variation applies. (4) The election and any variation must be in a form approved in writing by the * Heritage Secretary. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.249C Requirements--certain cultural property gifts (1) This section applies if you make an election for a gift covered by item 4 or 5 of the table in section 30-15. (2) You must give a copy of the election to the * Arts Secretary before you lodge your * income tax return for the income year in which you made the gift. (3) If you vary the election, you must give a copy of the variation to the * Arts Secretary before you lodge your *income tax return for the first income year to which the variation applies. (4) The election and any variation must be in a form approved in writing by the * Arts Secretary. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.249D Requirements--conservation covenants (1) This section applies if you make an election for a * conservation covenant. (2) You must give a copy of the election to the * Environment Secretary before you lodge your * income tax return for the income year in which you entered the covenant. (3) If you vary the election, you must give a copy of the variation to the * Environment Secretary before you lodge your *income tax return for the first income year to which the variation applies. Guide to Subdivision 30-E INCOME TAX ASSESSMENT ACT 1997 - SECT 30.250 What this Subdivision is about This Subdivision requires the establishment of a register of environmental organisations. Section 30-15 allows you to deduct a gift that you make to a fund that is on the register. Table of sections Operative provisions 30-255 Establishing the register 30-260 Meaning of environmental organisation 30-265 Its principal purpose must be protecting the environment 30-270 Other requirements it must satisfy 30-275 Further requirement for a body corporate or a co-operative society 30-280 What must be on the register 30-285 Removal from the register Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 30.255 Establishing the register The * Environment Secretary must keep a register of * environmental organisations. Note: Section 30-280 sets out what details must be entered on the register. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.260 Meaning of environmental organisation An environmental organisation is: (a) a body corporate; or (b) a co-operative society; or (c) a trust; or (d) an unincorporated body established for a public purpose by the Commonwealth, a State or a Territory; that satisfies each requirement in sections 30-265 and 30-270. Note: A body corporate or a co-operative society must satisfy a further requirement: see section 30-275. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.265 Its principal purpose must be protecting the environment (1) Its principal purpose must be: (a) the protection and enhancement of the natural environment or of a significant aspect of the natural environment; or (b) the provision of information or education, or the carrying on of research, about the natural environment or a significant aspect of the natural environment. (2) It must maintain a public fund that meets the requirements of section 30-130, or would meet those requirements if the * environmental organisation were a fund, authority or institution. (4) It must have agreed to comply with any rules that the Treasurer and the * Environment Minister make to ensure that gifts made to the fund are used only for its principal purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.270 Other requirements it must satisfy No payment of profits to its members (1) It must not pay any of its profits or financial surplus, or give any of its property, to its members, beneficiaries, controllers or owners (as appropriate). No acting as a conduit (2) It must have a policy of not acting as a mere conduit for the donation of money or property to other organisations, bodies or persons. Surplus assets to be transferred on winding up (3) It must have rules providing that, if the public fund is wound up, any surplus assets of the fund are to be transferred to another fund that is on the register. Statistical information to be provided (4) It must have agreed to give the * Environment Secretary, within a reasonable period after the end of each income year, statistical information about gifts made to the public fund during that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.275 Further requirement for a body corporate or a co-operative society A body corporate (except a statutory authority) or a co-operative society is an environmental organisation only if: (a) its membership consists principally of bodies corporate; or (b) it has at least 50 members who are individuals that are: (i) regarded as financial members; and (ii) entitled to vote at a general meeting of it; or (c) the * Environment Minister has determined that, because of special circumstances, it does not have to meet either of the requirements in paragraph (a) or (b). INCOME TAX ASSESSMENT ACT 1997 - SECT 30.280 What must be on the register (1) The * Environment Secretary must enter on the register each * environmental organisation, and the public fund it maintains, that he or she has been directed to enter by the Treasurer and the * Environment Minister. (2) The Treasurer and the Minister may so direct the Secretary only if the Minister has notified the Treasurer that he or she is satisfied that an organisation is an * environmental organisation. The notification must be in writing. (3) The direction must be in writing and must specify the day on which the organisation and public fund are to be entered on the register. The day must be the day on which the direction is given or a later day. (4) The Treasurer and the * Environment Minister must have regard to the policies and budgetary priorities of the Commonwealth Government in deciding whether to give a direction. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.285 Removal from the register (1) The Treasurer and the * Environment Minister may direct the * Environment Secretary to remove an *environmental organisation, and the public fund it maintains, from the register. (2) The direction must be in writing and must specify the day on which the organisation and public fund are to be removed from the register. The day must be the day on which the direction is given or a later day. Guide to Subdivision 30-EA INCOME TAX ASSESSMENT ACT 1997 - SECT 30.286 What this Subdivision is about This Subdivision requires the establishment of a register of harm prevention charities. Section 30-15 allows you to deduct a gift that you make to a fund that is on the register. Table of sections Operative provisions 30-287 Establishing the register 30-288 Meaning of harm prevention charity 30-289 Principal activity--promoting the prevention or control of harm or abuse 30-289A Other requirements 30-289B What must be on the register 30-289C Removal from the register Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 30.287 Establishing the register The * Families Secretary must keep a register of * harm prevention charities. Note: Section 30-289B sets out what details must be entered on the register. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.288 Meaning of harm prevention charity A harm prevention charity is a charitable institution that: (a) satisfies each requirement in sections 30-289 and 30-289A; and (b) is endorsed as exempt from income tax under Subdivision 50-B. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.289 Principal activity--promoting the prevention or control of harm or abuse (1) The principal activity of the institution must be the promotion of the prevention or the control of * behaviour that is harmful or abusive to human beings. (2) It must maintain a public fund that meets the requirements of section 30-130. (4) It must have agreed to comply with any rules that the Treasurer and the * Families Minister make to ensure that gifts made to the fund are used only for its principal activity. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.289A Other requirements No acting as a conduit (1) The institution must have a policy of not acting as a mere conduit for the donation of money or property to other organisations, bodies or persons. Surplus assets to be transferred on winding up (2) It must have rules providing that, if the public fund is wound up, any surplus assets of the fund are to be transferred to another fund that is on the register. Statistical information to be provided (3) It must have agreed to give the * Families Secretary, within a reasonable period after the end of each income year, statistical information about gifts made to the public fund during that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.289B What must be on the register (1) The * Families Secretary must enter on the register each * harm prevention charity, and the public fund it maintains, that he or she has been directed to enter by the Treasurer and the * Families Minister. (2) The Treasurer and the Minister may so direct the Secretary only if the Minister has notified the Treasurer that he or she is satisfied that an institution is a * harm prevention charity. The notification must be in writing. (3) The direction must be in writing and must specify the day on which the charity and public fund are to be entered on the register. The day must be the day on which the direction is given or a later day. (4) The Treasurer and the * Families Minister must have regard to the policies and budgetary priorities of the Commonwealth Government in deciding whether to give a direction. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.289C Removal from the register (1) The Treasurer and the * Families Minister may direct the * Families Secretary to remove a * harm prevention charity, and the public fund it maintains, from the register. (2) The direction must be in writing and must specify the day on which the charity and public fund are to be removed from the register. The day must be the day on which the direction is given or a later day. Guide to Subdivision 30-F INCOME TAX ASSESSMENT ACT 1997 - SECT 30.290 What this Subdivision is about This Subdivision requires the establishment of a register of cultural organisations. Section 30-15 allows you to deduct a gift that you make to a fund that is on the register. Table of sections Operative provisions 30-295 Establishing the register 30-300 Meaning of cultural organisation 30-305 What must be on the register 30-310 Removal from the register Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 30.295 Establishing the register The * Arts Secretary must keep a register of *cultural organisations. Note: Section 30-305 sets out what details must be entered on the register. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.300 Meaning of cultural organisation (1) A cultural organisation is: (a) a body corporate; or (b) a trust; or (c) an unincorporated body established for a public purpose by the Commonwealth, a State or a Territory; that satisfies each requirement in this section. (2) Its principal purpose must be the promotion of literature, music, a performing art, a visual art, a craft, design, film, video, television, radio, community arts, Aboriginal arts or movable cultural heritage. (3) It must maintain a public fund that meets the requirements of section 30-130, or would meet those requirements if the * cultural organisation were a fund, authority or institution. (5) It must not pay any of its profits or financial surplus, or give any of its property, to its members, beneficiaries, controllers or owners (as appropriate). (6) It must have agreed to comply with any rules that the Treasurer and the * Arts Minister make to ensure that gifts made to the fund are used only for its principal purpose. (7) It must have agreed to give the * Arts Secretary, at intervals of 6 months, statistical information about gifts made to the public fund during the last 6 months. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.305 What must be on the register (1) The * Arts Secretary must enter on the register each * cultural organisation, and the public fund it maintains, that he or she has been directed to enter by the Treasurer and the * Arts Minister. (2) The Treasurer and the Minister may so direct the Secretary only if the Minister has notified the Treasurer that he or she is satisfied that an organisation is a * cultural organisation. The notification must be in writing. (3) The direction must be in writing and must specify the day on which the organisation and public fund are to be entered on the register. The day must be the day on which the direction is given or a later day. (4) The Treasurer and the * Arts Minister must have regard to the policies and budgetary priorities of the Commonwealth Government in deciding whether to give a direction. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.310 Removal from the register (1) The Treasurer and the * Arts Minister may direct the * Arts Secretary to remove a * cultural organisation, and the public fund it maintains, from the register. (2) The direction must be in writing and must specify the day on which the organisation and public fund are to be removed from the register. The day must be the day on which the direction is given or a later day. Table of sections 30-315 Index 30-320 Effect of this Subdivision INCOME TAX ASSESSMENT ACT 1997 - SECT 30.315 Index (1) The table in this section gives you an index to this Division. (2) It tells you: * each topic covered by this Division; and * where in this Division you can find the detail about each topic. Note: In the last column there are many references in this form: item 2.2.1. These refer to items in the tables in Subdivision 30-B. Index Topic Provision 1A 2009 Victorian Bushfire Appeal Trust Account item 4.2.41 1AA Aboriginal Education Council (N.S.W.) Incorporated item 2.2.26 1 Academies - professional section 30-25 2 Academy of the Social Sciences in Australia Incorporated item 2.2.1 2AAA ACT Playgroups Association Incorporated item 8.2.9 2AAB ACT Region Crime Stoppers Limited item 4.2.31A 2ACA AE 2 Commemorative Foundation Ltd item 5.2.29 2AD American Australian Association Limited item 9.2.18 3 Amnesty International Australia item 4.2.1 3A Amy Gillett Foundation item 10.2.8 4 Ancillary funds item 2 of the table in section 30-15 4A Animal welfare item 4.1.6 6 Approved research institutes item 3.1.1 7 Armed forces, auxiliaries item 5.1.2 8 Artbank item 5 of the table in section 30-15 9 Art galleries items 12.1.4 and 12.1.5; item 4 of the table in section 30-15 9AA Asia Society AustralAsia Centre item 9.2.7 9AB Australasian College for Emergency Medicine item 1.2.18 9A Australia for UNHCR item 9.2.10 10 Australian Academy of Science item 2.2.2 11 Australian Academy of Technological Sciences and Engineering Limited item 2.2.4 12 Australian Academy of the Humanities for the Advancement of Scholarship in Language, Literature, History, Philosophy and the Fine Arts item 2.2.3 13A Australian American Education Leadership Foundation Limited item 9.2.4 14 Australiana Fund item 12.2.1; item 4 of the table in section 30-15 15 Australian and New Zealand Association for the Advancement of Science item 2.2.6 16 Australian and New Zealand College of Anaesthetists item 1.2.13 17 Australian Antarctic Territory, payment to Commonwealth for research item 3.2.3 17AAA Australian Breastfeeding Association item 8.2.3 17AA Australian Business Arts Foundation Ltd. item 12.2.2 17A Australian Business Register section 30-229 17B Australian Business Week Limited item 7.2.5 20 Australian Conservation Foundation Incorporated item 6.2.1 20A Australian Council of Christians and Jews item 2.2.17 21A Australian Human Rights Education Fund item 2.2.25 22 Australian Institute of International Affairs item 9.2.1 23 Australian Ireland Fund item 2.2.7 24A Australian Nuffield Farming Scholars Association item 2.2.20 24B Australian Peacekeeping Memorial Project Incorporated item 13.2.15 25A Australian Primary Principals Association Education Foundation item 2.2.22 27 Australian Sports Foundation item 10.2.1 27AAA Bali Peace Park Association Inc item 9.2.23 27AA Bathurst War Memorial Carillon Public Fund Trust item 5.2.28 27A Bionic Ear Institute item 1.2.17 28AA Bradman Memorial Fund item 10.2.7 28ABA Bunbury Diocese Cathedral Rebuilding Fund 13.2.14A 29 Cancer Australia item 1.2.19 30 Centre for Independent Studies item 3.2.1 30AA C E W Bean Foundation item 5.2.26 30A Charlie Perkins Scholarship Trust item 2.2.39 30B Chifley Research Centre Limited item 3.2.8 31 Child Accident Prevention Foundation of Australia item 4.2.2 31AA Christchurch Earthquake Appeal Trust item 9.2.24 31B Clontarf Foundation item 2.2.32 33 College buildings item 2.1.10 34AA Commonwealth Study Conferences (Australia) Incorporated item 2.2.23 35 Conditional gifts section 30-220 36 Connellan Airways Trust item 11.2.1 37 Conservation bodies section 30-55 39 Council for Christian Education in Schools item 2.2.10 39A Council for Jewish Community Security item 13.2.1 40 Council for Jewish Education in Schools item 2.2.11 40A Country Education Foundation of Australia Limited item 2.2.31 40B Crime Stoppers South Australia Limited item 4.2.27 40C Crime Stoppers Northern Territory Program item 4.2.31 41 Cultural Bequests Program, testamentary gifts Subdivision 30-D 42 Cultural organisations section 30-100 43 Cultural organisations, register of Subdivision 30-F 44 Defence organisations section 30-50 44AAA Diplomacy Training Program Limited item 9.2.21 44AA Disaster relief--public fund for relief of people in Australia item 4.1.5 44AB Disaster relief--public fund for relief of people in developing countries item 9.1.1 44AC Disaster relief--public fund for relief of people in developed countries item 9.1.2 44A Diseases--charitable institutions whose principal activity is to promote the prevention or the control of diseases in human beings items 1.1.6 and 4.1.7 45 Diseases--institutions researching causes, prevention or cure items 1.1.4 and 1.1.5 45AAA Don Chipp Foundation Ltd item 3.2.9 45A Dymocks Children's Charities Limited item 2.2.21 46 Education--education bodies section 30-25 46AA Education--public fund for scholarships, bursaries and prizes item 2.1.13 46A Endorsement as a deductible gift recipient Subdivision 30-BA 47 Environmental organisations section 30-55 48 Environmental organisations, register of Subdivision 30-E 48A Family and child mediation and counselling item 8.1.1 49 Family organisations section 30-70 49B Fire and emergency services section 30-102 50 Foundation for Development Cooperation Ltd item 9.2.3 50B Foundation for Rural and Regional Renewal Public Fund item 13.2.2 50C Foundation for Young Australians item 11.2.8 51 Friends of the Duke of Edinburgh's Award in Australia Incorporated item 11.2.2 51AA Fund-raising events--contributions items 7 and 8 of the table in section 30-15 51A General Sir John Monash Foundation item 2.2.27 52 Global Foundation item 9.2.8 52A Grattan Institute item 3.2.11 53 Greening Australia Limited item 6.2.2 53AA Green Institute Limited item 3.2.12 53A Girl Guides Australia items 10.2.2 and 10.2.3 53B Harm prevention charities items 4.1.4 and 4.1.7 54 Health organisations section 30-20 56 Heritage properties item 6 of the table in section 30-15 57 Higher education institutions item 2.1.3 58 Hospitals items 1.1.1, 1.1.2 and 1.1.3 60 Ian Clunies Ross Memorial Foundation item 3.2.2 62 Industry, trade and design section 30-65 63 International affairs section 30-80 63A International Social Service - Australian Branch item 4.2.28 63B International Specialised Skills Institute Incorporated item 2.2.33 64 Joint ownership of property section 30-225 64A Kidsafe items 4.2.32 to 4.2.39 (inclusive) 65 Landcare Australia Limited item 6.2.3 65A Leeuwin Ocean Adventure Foundation Limited item 13.2.3A 66 Libraries items 12.1.2 and 12.1.5; item 4 of the table in section 30-15 67 Life Education Centre items 2.2.8 and 2.2.9 67A Lingiari Policy Centre item 3.2.10 68 Lionel Murphy Foundation item 2.2.13 68AA Lord Somers Camp and Power House item 13.2.7 68AB Lowy Institute for International Policy item 9.2.12 69 Marcus Oldham Farm Management College item 2.2.14 70 Marriage education organisations item 8.1.1 70AA Mary MacKillop Canonisation Gift Fund item 13.2.18 70A Mawson's Huts Foundation Limited item 6.2.23 71 Medical colleges section 30-20 72 Medical research section 30-20 72AA Memorials Development Committee Ltd item 5.2.30 72A Menzies Research Centre Public Fund item 3.2.4 72C Mt Eliza Graduate School of Business and Government Limited item 2.2.24 73 Museums items 12.1.3 and 12.1.5; item 4 of the table in section 30-15 73A National Breast Cancer Centre Gift Fund item 1.2.16 74 National Foundation for Australian Women Limited item 4.2.3 75 National Parks associations section 30-55 76 National Safety Council of Australia Limited item 4.2.4 77 National Trust bodies section 30-55; item 6 of the table in section 30-15 77A Nature Foundation SA Incorporated item 6.2.9 78 Nature organisations section 30-55 79 Necessitous circumstances - funds for relief of persons in item 4.1.3 80 New South Wales College of Nursing item 1.2.5 81A One Laptop per Child Australia Ltd item 2.2.38 82 Overseas relief funds item 9.1.1 82A Page Research Centre Limited item 3.2.7 84 People in need, fund for item 4.1.3 85 Philanthropic trusts section 30-95 86 Playford Memorial Trust item 11.2.4 86A Playgroup Association Northern Territory Incorporated item 8.2.8 86AA Playgroup Australia Incorporated item 8.2.12 86B Playgroup NSW (Inc) item 8.2.4 86C Playgroup Queensland Incorporated item 8.2.6 86CA Playgroup SA Inc item 8.2.11 86D Playgroup Tasmania Inc item 8.2.7 86DA Playgroup Victoria Inc. item 8.2.10 86E Playgroup WA (Inc) item 8.2.5 87 Political parties and independent candidates and members Subdivision 30-DA 88 Polly Farmer Foundation (Inc) item 2.2.16 89 Prevention of cruelty to animals section 30-45 90 Productivity section 30-65 92 Property, rules for valuing gifts section 30-15 and Subdivision 30-C 92A Public ambulance services items 1.1.7 and 1.1.8 93 Public benevolent institutions items 4.1.1, 4.1.2 and 4.1.7 94 PWR Melbourne 2009 Limited item 13.2.17 94AB Ranfurly Library Service Incorporated item 12.2.3 94A Receipts for gifts Subdivision 30-CA 94B Reconciliation Australia Limited item 4.2.19 95 Religious instruction/education section 30-25 95A Research Australia Limited item 3.2.6 96 Research institutions items 1.1.4 and 1.1.5 97 Residential education institutions section 30-25 97AA Roberta Sykes Indigenous Education Foundation item 2.2.40 97A Royal Australian and New Zealand College of Obstetricians and Gynaecologists item 1.2.1 98 Royal Australian and New Zealand College of Psychiatrists item 1.2.6 98A Royal Australian and New Zealand College of Radiologists item 1.2.4 99 Royal Australian College of General Practitioners item 1.2.7 100 Royal Australasian College of Physicians item 1.2.8 101 Royal Australasian College of Surgeons item 1.2.9 102 Royal College of Nursing, Australia item 1.2.12 103 Royal College of Pathologists of Australasia item 1.2.10 103A Royal Institution of Australia Incorporated item 2.2.37 104 Royal Societies for the Prevention of Cruelty to Animals section 30-45 104B RSL Foundation item 5.2.11 105 Rural school hostel buildings item 2.1.11 107 School building funds item 2.1.10 108 Schools section 30-25 109 Scouts items 10.2.4 and 10.2.5 110 Sichuan Earthquake Surviving Children's Education Fund item 9.2.22 110A Sir Earl Page Memorial Trust item 3.2.5 111 Sir Robert Menzies Memorial Trust Foundation Limited item 11.2.5 111A Sir William Tyree Foundation of The Australian Industry Group item 2.2.18 111AA Social Ventures Australia Limited item 13.2.16 111B SouthCare Helicopter Fund item 1.2.14 111C Spirit of Australia Foundation item 2.2.36 112 Sports and recreation section 30-90 112AA Spreading deductions over income years Subdivision 30-DB 112AF St George's Cathedral Restoration Fund item 13.2.8 112C Sydney Talmudical College Association Refugees Overseas Aid Fund item 9.2.5 113 Tasmanian Conservation Trust Incorporated item 6.2.11 114 Taxation incentives for the Arts scheme items 4 and 5 of the table in section 30-15 115 Technical and further education institution item 2.1.7 116 Tertiary education/TAFE section 30-25 116A Trust for Nature (Victoria) item 6.2.6 117 Trusts--ancillary item 2 of the table in section 30-15 118 Trusts--philanthropic section 30-95 118A United Israel Appeal Refugee Relief Fund Limited item 9.2.6 118B United States Studies Centre item 3.2.13 119 Universities - general section 30-25 120 Universities - research section 30-40 120A Valuations by Commissioner section 30-212 121 Valuers section 30-210 121A Victorian Crime Stoppers Program item 4.2.29 122 Visy Cares item 11.2.9 123 War Memorials section 30-50 124 Welfare and rights section 30-45 124A WHEELCHAIRS FOR KIDS Incorporated item 9.2.19 125 Winston Churchill Memorial Trust item 11.2.7 126 WorldSkills Australia item 7.2.3 127 World Wide Fund for Nature Australia item 6.2.22 127A Xanana Vocational Education Trust item 9.2.17 127B Yachad Accelerated Learning Project Limited item 2.2.34 128 Young Endeavour Youth Scheme Public Fund item 13.2.3 INCOME TAX ASSESSMENT ACT 1997 - SECT 30.320 Effect of this Subdivision This Subdivision is a * Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. Guide to Division 31 INCOME TAX ASSESSMENT ACT 1997 - SECT 31.1 What this Division is about You can deduct an amount if you enter into a conservation covenant over land that you own and you satisfy certain conditions. The amount you can deduct is the difference between the market value of the land just before and after you enter into the covenant. Table of sections Operative provisions 31-5 Deduction for entering into conservation covenant 31-10 Requirements for fund, authority or institution 31-15 Valuations by the Commissioner Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 31.5 Deduction for entering into conservation covenant (1) You can deduct an amount if: (a) you enter into a * conservation covenant over land you own; and (b) the conditions set out in subsection (2) are met. (2) These conditions must be satisfied: (a) the covenant must be perpetual; (b) you must not receive any money, property or other material benefit for entering into the covenant; (c) the * market value of the land must decrease as a result of your entering into the covenant; (d) one or both of these must apply: (i) the change in the market value of the land as a result of entering into the covenant must be more than $5,000; (ii) you must have entered into a contract to acquire the land not more than 12 months before you entered into the covenant; (e) the covenant must have been entered into with: (i) a fund, authority or institution that meets the requirements of section 31-10; or (ii) the Commonwealth, a State, a Territory or a * local governing body; or (iii) an authority of the Commonwealth, a State or a Territory. Note: You must seek a valuation of the change in market value from the Commissioner: see section 31-15. (3) The amount you can deduct is the difference between the * market value of the land just before you entered the covenant and its decreased market value just after that time, but only to the extent that the decrease is attributable to your entering into the covenant. Note: You can spread the deduction over a 5 year period: see Subdivision 30-DB. (4) For the purposes of paragraph (2)(a), a covenant is treated as being perpetual even if a Minister of a State or Territory has a power to rescind it. (5) A conservation covenant over land is a covenant that: (a) restricts or prohibits certain activities on the land that could degrade the environmental value of the land; and (b) is permanent and registered on the title to the land (if registration is possible); and (c) is approved in writing by, or is entered into under a program approved in writing by, the * Environment Minister. INCOME TAX ASSESSMENT ACT 1997 - SECT 31.10 Requirements for fund, authority or institution (1) The fund, authority or institution: (a) must be covered by an item in any of the tables in Subdivision 30-B and must meet any conditions set out in the relevant table item; or (b) must be an * ancillary fund established under a will or instrument of trust solely for: (i) the purpose of providing money, property or benefits to a fund, authority or institution mentioned in paragraph (a) and for any purposes set out in the item of the table in Subdivision 30-B that covers the fund, authority or institution; or (ii) the establishment of such a fund, authority or institution. (2) If the fund, authority or institution is not listed specifically in Subdivision 30-B, it must also: (a) be in Australia; and (b) meet the requirements of section 30-17 (about the endorsement of deductible gift recipients). INCOME TAX ASSESSMENT ACT 1997 - SECT 31.15 Valuations by the Commissioner (1) You must seek a valuation of the change in the * market value of the land from the Commissioner for the purposes of this Division. (2) The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation. Table of Subdivisions Guide to Division 32 32-A No deduction for entertainment expenses 32-B Exceptions 32-C Definitions relevant to the exceptions 32-D In-house dining facilities (employer expenses table item 1.2) 32-E Anti-avoidance 32-F Special rules for companies and partnerships Guide to Division 32 INCOME TAX ASSESSMENT ACT 1997 - SECT 32.1 What this Division is about You cannot deduct costs of providing entertainment. Nor can you deduct amounts for property that you use for providing entertainment. But there are exceptions. Table of sections 32-5 No deduction for entertainment expenses 32-10 Meaning of entertainment 32-15 No deduction for property used for providing entertainment INCOME TAX ASSESSMENT ACT 1997 - SECT 32.5 No deduction for entertainment expenses To the extent that you incur a loss or outgoing in respect of providing * entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B. Note 1: Under section 8-1 you can deduct a loss or outgoing that you incur for the purpose of producing assessable income. Note 2: If you have used your property in providing entertainment, you may not be able to deduct an amount for the property: see section 32-15. Note 3: Section 32-75 deals with arrangements to avoid the operation of this section. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.10 Meaning of entertainment (1) Entertainment means: (a) entertainment by way of food, drink or * recreation; or (b) accommodation or travel to do with providing entertainment by way of food, drink or * recreation. (2) You are taken to provide entertainment even if business discussions or transactions occur. Note: These are some examples of what is entertainment: * business lunches * social functions. These are some examples of what is not entertainment: * meals on business travel overnight * theatre attendance by a critic * a restaurant meal of a food writer. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.15 No deduction for property used for providing entertainment To the extent that you use property in providing * entertainment, your use of the property is taken not to be for the * purpose of producing assessable income if section 32-5 would stop you deducting a loss or outgoing if you incurred it in the income year in providing the entertainment. Note: Under some provisions of this Act, in order to deduct an amount for your property, you must have used the property for the purpose of producing assessable income. Table of sections 32-20 The main exception--fringe benefits 32-25 The tables set out the other exceptions 32-30 Employer expenses 32-35 Seminar expenses 32-40 Entertainment industry expenses 32-45 Promotion and advertising expenses 32-50 Other expenses INCOME TAX ASSESSMENT ACT 1997 - SECT 32.20 The main exception--fringe benefits Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing * entertainment by way of * providing a * fringe benefit. But this exception does not apply to the extent that the taxable value of the * fringe benefit is reduced under section 63A of the Fringe Benefits Tax Assessment Act 1986. Note 1: You may be able to deduct losses or outgoings that are fringe benefits under section 51AEA, 51AEB or 51AEC of the Income Tax Assessment Act 1936. If you do, then you cannot deduct them under section 8-1 (about general deductions) and so this section is not relevant. Note 2: There are other exceptions for a loss or outgoing you incur in providing a benefit that would be a fringe benefit if it were not an exempt benefit: see items 1.6 and 1.7 of the table in section 32-30. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.25 The tables set out the other exceptions Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing * entertainment as described in column 2 of an item of a table in this Subdivision. However, if column 3 of that item applies, the exception in column 2 of that item does not. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.30 Employer expenses Employer expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... But the exception does not apply if ... 1.1 providing food or drink to your employees in an * in-house dining facility. the food or drink is provided at a party, reception or other social function. 1.2 providing food or drink to individuals (other than your employees) in an * in-house dining facility. (a) you choose (under section 32-70) not to include in your assessable income $30 for each meal you provide in the * in-house dining facility in the income year to an individual (other than your employee); or (b) the food or drink is provided at a party, reception or other social function. 1.3 providing food or drink in a * dining facility to your employees who perform most of their duties in connection with: (a) the dining facility; or (b) a facility (of which the dining facility forms a part) for providing accommodation, * recreation or travel. the food or drink is provided at a party, reception or other social function. 1.4 providing food or drink to your employee under an * industrial instrument relating to overtime. 1.5 providing a facility for * recreation on property you occupy, if the facility is mainly operated for your employees to use. the facility is for: (a) accommodation; or (b) dining or drinking (unless it is a food or drink vending machine). 1.6 providing food or drink which would be a * fringe benefit apart from sections 54, 58, 58N, 58S and 58T of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act). 1.7 providing a meal which would be a * fringe benefit apart from sections 58A, 58F, 58L, 58LA and 58M of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act). 1.8 giving your employee an allowance that is included in his or her assessable income. (a) the employee is a * relative of another employee of yours; and (b) you give the allowance to the relative, as your employee, because: (i) he or she provides, or facilitates providing, * entertainment to do with the other employee's employment; and (ii) you expect the relative to do so. Note 1: In the case of a company, items 1.1, 1.2, 1.3, 1.5 and 1.8 cover directors of the company as if they were employees: see section 32-80. Note 2: In the case of a company, items 1.1, 1.2, 1.3 and 1.5 cover directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85. Note 3: Item 1.8 has a special operation for partnerships: see section 32-90. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.35 Seminar expenses Seminar expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... But the exception does not apply if ... 2.1 providing food, drink, accommodation or travel to an individual (including yourself) that is reasonably incidental to the individual attending a * seminar that * goes for at least 4 hours. (a) the seminar is a * business meeting; or (b) the * seminar's main purpose is to promote or advertise a * business (or prospective *business) or its goods or services; or (c) the * seminar's main purpose is to provide * entertainment at, or in connection with, the seminar. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.40 Entertainment industry expenses Entertainment industry expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... But the exception does not apply if ... 3.1 providing * entertainment for payment in the ordinary course of a *business that you carry on. 3.2 providing * entertainment in performing your duties to your employer who carries on a * business that includes providing that entertainment for payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.45 Promotion and advertising expenses Promotion and advertising expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... But the exception does not apply if ... 4.1 providing * entertainment if: (a) you provide it to an individual under a contract to supply him or her with goods or services in the ordinary course of your * business; and (b) you incur the loss or outgoing to promote or advertise to the public your business or its goods or services. 4.2 providing or exhibiting your * business's goods or services if you incur the loss or outgoing to promote or advertise those goods or services to the public. 4.3 providing * entertainment to promote or advertise to the public a *business or its goods or services. some people have a greater opportunity to get the benefits of the entertainment than ordinary members of the public have. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.50 Other expenses Other expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... But the exception does not apply if ... 5.1 buying food or drink to do with overtime that you work, if you receive an allowance under an * industrial instrument to buy the food or drink. 5.2 providing * entertainment free to members of the public who are sick, disabled, poor or otherwise disadvantaged. Table of sections 32-55 In-house dining facility (employer expenses table items 1.1 and 1.2) 32-60 Dining facility (employer expenses table item 1.3) 32-65 Seminars (seminar expenses table item 2.1) INCOME TAX ASSESSMENT ACT 1997 - SECT 32.55 In-house dining facility (employer expenses table items 1.1 and 1.2) An in-house dining facility is a canteen, dining room or similar facility that: (a) is on property you occupy; and (b) is operated mainly for providing food and drink to your employees; and (c) is not open to the public. Note 1: In the case of a company, this definition also covers directors of the company as if they were employees: see section 32-80. Note 2: In the case of a company, this definition also covers directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.60 Dining facility (employer expenses table item 1.3) A dining facility is: (a) a canteen, dining room or similar facility; or (b) a cafe, restaurant or similar facility; that is on property you occupy. Note: In the case of a company, this definition also covers property of another company that is a member of the same wholly-owned group: see section 32-85. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.65 Seminars (seminar expenses table item 2.1) (1) Seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, "question and answer session", training session or educational course. (2) In working out whether a * seminar goes for at least 4 hours the following are taken not to affect the seminar's continuity, nor to form part of it: (a) any part of the seminar that occurs during a meal; (b) any break during the seminar for the purpose of a meal, rest or * recreation. (3) A * seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular * business to give or receive information, or discuss matters, relating to the business. However, the * seminar is not a business meeting if it: (a) is organised by (or on behalf of) an employer solely for either or both of these purposes: (i) training the employer and the employer's employees (or just those employees) in matters relevant to the employer's * business (or prospective * business); (ii) enabling the employer and the employer's employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer's * business; and (b) is conducted on property that is occupied by a person (other than the employer) whose * business includes organising seminars or making property available for conducting seminars. Note 1: In the case of a company, subsection (3) covers directors of the company as if they were employees: see section 32-80. Note 2: In the case of a company, paragraph (3)(b) also covers property of another company that is a member of the same wholly-owned group: see section 32-85. Note 3: Subsection (3) has a special operation for partnerships: see section 32-90. Table of sections 32-70 $30 is assessable for each meal provided to non-employee in an in-house dining facility INCOME TAX ASSESSMENT ACT 1997 - SECT 32.70 $30 is assessable for each meal provided to non-employee in an in-house dining facility (1) Your assessable income includes $30 for a meal you provide in an * in-house dining facility in the income year to an individual other than your employee, but only if: (a) you incur a loss or outgoing in respect of providing the meal; and (b) because of item 1.2 of the table in section 32-30, section 32-5 does not stop you deducting the loss or outgoing under section 8-1 (which deals with general deductions); and (c) the loss or outgoing is one that you can deduct under section 8-1 for the income year or some other income year. (2) However, you can choose not to include in your assessable income $30 for each meal you provide in the * in-house dining facility in the income year to an individual other than your employee. Note: If you do choose, you cannot rely on item 1.2 of the table in section 32-30 as a basis for deducting a loss or outgoing you incur in respect of providing a meal. (3) You must choose by the day you lodge your * income tax return for the income year, or within a further time allowed by the Commissioner. Table of sections 32-75 Commissioner may treat you as having incurred entertainment expense INCOME TAX ASSESSMENT ACT 1997 - SECT 32.75 Commissioner may treat you as having incurred entertainment expense If: (a) you incur a loss or outgoing under an * arrangement; and (b) someone provides * entertainment under the arrangement to you or someone else; and (c) section 32-5 would have stopped you deducting the loss or outgoing under section 8-1 (which deals with general deductions) if you had incurred it in respect of providing that entertainment; this Division applies to you as if you had incurred the loss or outgoing in providing that entertainment, to the extent (if any) that the Commissioner thinks reasonable. Note: This means that section 32-5 will prevent you from deducting the loss or outgoing under section 8-1 unless an exception applies. Example: A company pays $1,000 to sponsor a football game. Under the same arrangement, the company is given a viewing box at the game. To the extent the Commissioner thinks reasonable, he or she can treat the company as having incurred the $1,000 in providing entertainment. Table of sections 32-80 Company directors 32-85 Directors, employees and property of wholly-owned group company 32-90 Partnerships INCOME TAX ASSESSMENT ACT 1997 - SECT 32.80 Company directors In the case of a company, these provisions cover directors of the company as if they were the company's employees: * item 1.1 (exception for *in-house dining facilities) of the table in section 32-30; * item 1.2 (exception for *in-house dining facilities) of the table in section 32-30; * item 1.3 (exception for *dining facilities) of the table in section 32-30; * item 1.5 (exception for recreational facilities) of the table in section 32-30; * item 1.8 (exception for providing your employee with an allowance) of the table in section 32-30; * section 32-55 (which defines in-house dining facility); * subsection 32-65(3) (which defines business meeting). INCOME TAX ASSESSMENT ACT 1997 - SECT 32.85 Directors, employees and property of wholly-owned group company Employees and directors of group company (1) In the case of a company, these provisions cover directors and employees of another company that is a member of the same * wholly-owned group as if they were the company's own directors and employees: * item 1.1 (exception for *in-house dining facilities) of the table in section 32-30; * item 1.2 (exception for *in-house dining facilities) of the table in section 32-30; * item 1.3 (exception for *dining facilities) of the table in section 32-30; * item 1.5 (exception for recreational facilities) of the table in section 32-30; * section 32-55 (which defines in-house dining facility); * subsection 32-60(1) (which defines dining facility); * paragraph 32-65(3)(b). Property occupied by group company (2) Those provisions also cover property occupied by that other company as if the company occupied that property. INCOME TAX ASSESSMENT ACT 1997 - SECT 32.90 Partnerships In the case of a partnership: * item 1.8 (exception for providing employee with an allowance) of the table in section 32-30; and * subsection 32-65(3) (which defines business meeting); apply to a partner in the same way as they apply to an employee of the partnership, but only for the purposes of calculating, in accordance with section 90 of the Income Tax Assessment Act 1936, the partnership's net income or partnership loss. Table of Subdivisions Guide to Division 34 34-A Application of Division 34 34-B Deduction for your non-compulsory uniform 34-C Registering the design of a non-compulsory uniform 34-D Appeals from Industry Secretary's decision 34-E The Register of Approved Occupational Clothing 34-F Approved occupational clothing guidelines 34-G The Industry Secretary Guide to Division 34 INCOME TAX ASSESSMENT ACT 1997 - SECT 34.1 What this Division is about This Division is about deductions for the costs of non-compulsory uniforms. Table of sections 34-3 What you need to read INCOME TAX ASSESSMENT ACT 1997 - SECT 34.3 What you need to read Employees (1) If you incur expenditure for your non-compulsory uniform, you need to read Subdivision 34-B (which is about deductions for your non-compulsory uniform), starting at section 34-10. Employers (2) If you have people working for you who want to deduct expenditure of that kind, you need to read: * * Table of sections 34-5 This Division applies to employees and others 34-7 This Division applies to employers and others INCOME TAX ASSESSMENT ACT 1997 - SECT 34.5 This Division applies to employees and others (1) This Division applies not only to an individual who is an employee. It also applies to an individual who is not an employee, but who receives, or is entitled to receive, * withholding payments covered by subsection (3). (2) If an individual is not an employee, but is covered by subsection (1), this Division applies to the individual as if: (a) he or she were an employee; and (b) the entity, who pays (or is liable to pay) * withholding payments covered by subsection (3) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual's employer; and (c) any other individual who receives (or is entitled to receive) * withholding payments covered by subsection (3): (i) that result in that other individual being in receipt of, or entitled to receive, such payments; and (ii) that the entity pays (or is liable to pay) to that other individual; were an employee of the entity. (3) This subsection covers a * withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table. Withholding payments covered Item Provision Subject matter 1 Section 12-40 Payment to company director 2 Section 12-45 Payment to office holder 3 Section 12-50 Return to work payment 4 Subdivision 12-D Benefit, training and compensation payments INCOME TAX ASSESSMENT ACT 1997 - SECT 34.7 This Division applies to employers and others If an entity is not an employer, but pays (or is liable to pay) * withholding payments covered by subsection 34-5(3), this Division applies to the entity as if: (a) it were an employer; and (b) an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity's employee. Table of sections 34-10 What you can deduct 34-15 What is a non-compulsory uniform? 34-20 What are occupation specific clothing and protective clothing? INCOME TAX ASSESSMENT ACT 1997 - SECT 34.10 What you can deduct (1) If you are an employee, you can deduct expenditure you incur in respect of your * non-compulsory *uniform if: (a) you can deduct the expenditure under another provision of this Act; and (b) the * design of the uniform is registered under this Division when you incur the expenditure. Note 1: This Division also applies to individuals who are not employees: see Subdivision 34-A. Note 2: Employers apply to register designs of uniforms: see Subdivision 34-C. (2) You cannot deduct the expenditure under this Act if the * design is not registered at the time you incur the expenditure. (3) However, this Division does not stop you deducting expenditure you incur in respect of your * occupation specific clothing or *protective clothing. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.15 What is a non-compulsory uniform? What is a uniform? (1) A uniform is one or more items of clothing (including accessories) which, when considered as a set, distinctively identify you as a person associated (directly or indirectly) with: (a) your employer; or (b) a group consisting of your employer and one or more of your employer's * associates. When is a uniform non-compulsory? (2) Your uniform is non-compulsory unless your employer consistently enforces a policy that requires you and the other employees (except temporary or relief employees) who do the same type of work as you: (a) to wear the uniform when working for your employer; and (b) not to substitute an item of clothing not included in the uniform for an item of clothing included in the uniform when working for your employer; except in special circumstances. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.20 What are occupation specific clothing and protective clothing? (1) Occupation specific clothing is clothing that distinctively identifies you as belonging to a particular profession, trade, vocation, occupation or calling. To determine this, disregard any feature of the clothing that distinctively identifies you as a person associated (directly or indirectly) with: (a) your employer; or (b) a group consisting of your employer and one or more of your employer's * associates. Example: Occupation specific clothing includes a nurse's uniform, a chef's checked pants and a religious cleric's ceremonial robes. (2) Protective clothing is clothing of a kind that you mainly use to protect yourself, or someone else, from risk of: (a) death; or (b) * disease (including the contraction, aggravation, acceleration or recurrence of a disease); or (c) injury (including the aggravation, acceleration or recurrence of an injury); or (d) damage to clothing; or (e) damage to an artificial limb or other artificial substitute, or to a medical, surgical or other similar aid or appliance. Example: Protective clothing includes overalls, aprons, goggles, hard hats and safety boots, when worn to protect the wearer. Meaning of disease (3) Disease includes any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether of genetic or other origin. Table of sections 34-25 Application to register the design 34-30 Industry Secretary's decision on application 34-33 Written notice of decision 34-35 When uniform becomes registered INCOME TAX ASSESSMENT ACT 1997 - SECT 34.25 Application to register the design (1) The employer of an employee who has, or will have, a * non-compulsory * uniform can apply to the * Industry Secretary for the * design of the uniform to be registered. Note: This Division also applies to entities that are not employers: see Subdivision 34-A. Meaning of design of a uniform (2) The design of a * uniform includes features such as its colouring, construction, durability, ornamentation, pattern and shape. Form of application (3) The application must be: (a) in writing; and (b) in a form approved in writing by the * Industry Secretary; and (c) accompanied by such information as the Industry Secretary requires. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.30 Industry Secretary's decision on application Industry Secretary must decide to grant or refuse application (1) After considering the application, the * Industry Secretary must decide to either grant or refuse the application. Criteria for grant of application (2) The * Industry Secretary must not decide to grant an application unless he or she is satisfied that the design meets the criteria set out in the * approved occupational clothing guidelines. Note: The approved occupational clothing guidelines are created under section 34-55. When Industry Secretary taken to have refused application (3) The * Industry Secretary is taken to have refused an application if he or she does not make a decision by the later of the following times (the deadline): (a) the end of 90 days (the 90-day period) after the day the Industry Secretary receives the application; (b) if the Industry Secretary, by written notice given to the applicant within the 90-day period, requests the applicant to give further information about the application--the end of 90 days after the Industry Secretary receives the further information. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.33 Written notice of decision (1) If the * Industry Secretary makes a decision to grant or refuse an application under subsection 34-30(1) before the * deadline, the Industry Secretary must give the applicant written notice of the decision. Reasons for refusal (2) If the notice is a notice of a decision to refuse the application, it must also set out the reasons for the refusal. Statements to accompany notice of decision (3) The notice of the decision is to include the statements set out in subsections (4) and (5). (4) There must be a statement to the effect that, subject to the Administrative Appeals Tribunal Act 1975, an application may be made to the * AAT, by (or on behalf of) any entity whose interests are affected by the decision, for review of the decision. (5) There must also be a statement to the effect that a request may be made under section 28 of that Act by (or on behalf of) such an entity for a statement: (a) setting out the findings on material questions of fact; and (b) referring to the evidence or other material on which those findings were based; and (c) giving the reasons for the decision; except where subsection 28(4) of that Act applies. Failure does not affect validity (6) If the * Industry Secretary fails to comply with subsection (4) or (5), that failure does not affect the validity of his or her decision. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.35 When uniform becomes registered If the * Industry Secretary decides to grant the application, the * design of the * uniform becomes registered on: (a) the day the decision is made; or (b) if the applicant requests--such earlier day as the Industry Secretary specifies. Note: When the design becomes registered, an entry for the design is made on the Register of Approved Occupational Clothing. Subdivision 34-E is about the Register. Table of sections 34-40 Review of decisions by the Administrative Appeals Tribunal INCOME TAX ASSESSMENT ACT 1997 - SECT 34.40 Review of decisions by the Administrative Appeals Tribunal Applications may be made to the * AAT for review of a decision made by the * Industry Secretary under subsection 34-30(1). Table of sections 34-45 Keeping of the Register 34-50 Changes to the Register INCOME TAX ASSESSMENT ACT 1997 - SECT 34.45 Keeping of the Register (1) The * Industry Secretary must keep the Register of Approved Occupational Clothing, listing the designs that are required to be entered on the Register because of this Division. Register to be open for inspection (2) The * Industry Secretary must arrange for the Register to be available for inspection at any reasonable time by any person on request. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.50 Changes to the Register Removal of registration (1) The * Industry Secretary must remove an entry for a * design from the Register of Approved Occupational Clothing if requested to do so by the employer who applied for the design to be registered. Correcting errors and mistakes (2) The * Industry Secretary may correct a clerical error or an obvious mistake in an entry for a design in the Register and, if the Industry Secretary does so, the correction takes effect on the day on which the design to which the entry relates was registered. Table of sections 34-55 Approved occupational clothing guidelines INCOME TAX ASSESSMENT ACT 1997 - SECT 34.55 Approved occupational clothing guidelines (1) The Treasurer must, by legislative instrument, formulate written guidelines (the approved occupational clothing guidelines) setting out criteria that * designs of uniforms must meet if the designs are to be registered. Matters to be taken into account in making guidelines (2) In making * approved occupational clothing guidelines, the matters to which the Treasurer is to have regard include: (a) how distinctively a * uniform's * design identifies the wearer as a person associated (directly or indirectly) with: (i) the applicant for registering the uniform's design; or (ii) a group consisting of the applicant and one or more of the applicant's * associates; and (b) the nature of the * business or activities the applicant carries on. Table of sections 34-60 Industry Secretary to give Commissioner information about entries 34-65 Delegation of powers by Industry Secretary INCOME TAX ASSESSMENT ACT 1997 - SECT 34.60 Industry Secretary to give Commissioner information about entries The * Industry Secretary must give the Commissioner information about entries of * designs on the Register of Approved Occupational Clothing if the Commissioner requests him or her to do so. INCOME TAX ASSESSMENT ACT 1997 - SECT 34.65 Delegation of powers by Industry Secretary The * Industry Secretary may, by writing, delegate any or all of his or her functions and powers under this Division to a person in the * Industry Department: (a) who holds or performs the duties of a * Senior Executive Service office; or (b) whose classification level appears in Group 7 or 8 of Schedule 1 to the Classification Rules under the Public Service Act 1999; or (c) who is acting in a position usually occupied by a person with a classification level of the kind mentioned in paragraph (b). Guide to Division 35 INCOME TAX ASSESSMENT ACT 1997 - SECT 35.1 What this Division is about This Division prevents losses of individuals from non-commercial business activities being offset against other assessable income in the year the loss is incurred. The loss is deferred. It sets out an income requirement and a series of tests to determine whether a business activity is treated as being non-commercial. The deferred losses may be offset in later years against profits from the activity. They may also be offset against other income if the income requirement and one of the other tests are satisfied, or if the Commissioner exercises a discretion. Table of sections Operative provisions 35-5 Object 35-10 Deferral of deductions from non-commercial business activities 35-15 Modification if you have exempt income 35-20 Modification if you become bankrupt 35-25 Application of Division to certain partnerships 35-30 Assessable income test 35-35 Profits test 35-40 Real property test 35-45 Other assets test 35-50 Apportionment 35-55 Commissioner's discretion Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 35.5 Object (1) The object of this Division is to improve the integrity of the taxation system by: (a) preventing losses from non-commercial activities that are * carried on as * businesses by individuals (alone or in partnership) being offset against other assessable income; and (b) preventing pre-business capital expenditure and post-business capital expenditure by individuals (alone or in partnership) in relation to non-commercial activities being deductible under section 40-880 (business related costs); unless certain exceptions apply. (2) This Division is not intended to apply to activities that do not constitute * carrying on a *business (for example, the receipt of income from passive investments). INCOME TAX ASSESSMENT ACT 1997 - SECT 35.10 Deferral of deductions from non-commercial business activities (1) The rule in subsection (2) applies for an income year to each * business activity you carried on in that year if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), unless: (a) you satisfy subsection (2E) for that year, and one of the tests set out in any of the following provisions is satisfied for the business activity for that year: (i) section 35-30 (assessable income test); (ii) section 35-35 (profits test); (iii) section 35-40 (real property test); (iv) section 35-45 (other assets test); or (b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity for that year; or (c) the exception in subsection (4) applies for that year. Note: This section covers individuals carrying on a business activity as partners, but not individuals merely in receipt of income jointly. Compare the definition of partnership in subsection 995-1(1). Rules (2) If the amounts attributable to the * business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess: (a) were not incurred in that income year; and (b) were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on. Note 1: There are modifications of this rule if you have exempt income (see section 35-15) or you become bankrupt (see section 35-20). Note 2: This rule does not apply if your excess is solely due to deductions under Division 41 (see section 35-10 of the Income Tax (Transitional Provisions) Act 1997). Example: Jennifer has a salaried job, and she also carries on a business activity consisting of selling lingerie. Jennifer starts that activity on 1 July 2002, and for the 2002-03 income year, the activity produces assessable income of $8,000 and deductions of $10,000. The activity does not pass any of the tests and the discretion is not exercised so the $2,000 excess is carried over to the next income year in which the activity is carried on. For the 2003-04 income year, the activity produces assessable income of $9,000 and deductions of $10,000 (excluding the $2,000 excess from 2002-03). Again, no tests passed and no exercise of discretion. $3,000 is carried over to the next income year (comprising the $1,000 excess for the current year, plus the previous year's $2,000 excess) when the activity is carried on. (2A) You cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a * business activity you used to * carry on if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership) unless: (a) you satisfied subsection (2E), and one of the tests set out in any of the following provisions was satisfied for the business activity: (i) section 35-30 (assessable income test); (ii) section 35-35 (profits test); (iii) section 35-40 (real property test); (iv) section 35-45 (other assets test); or (b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity; or (c) the exception in subsection (4) applied; for the income year in which the business activity ceased to be carried on or an earlier income year. (2B) If you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), you cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a * business activity: (a) you propose to * carry on; or (b) another entity proposes to carry on if the other entity is not an individual, either alone or in partnership; for an income year before the one in which the business activity starts to be carried on. (2C) This section applies to an amount that you could have deducted, apart from paragraph (2B)(a), as if it were an amount attributable to the * business activity that you can deduct from assessable income from the activity for the income year in which the business activity starts to be * carried on. (2D) You can deduct expenditure covered by paragraph (2B)(b) for the income year in which the * business activity starts to be *carried on. Income requirement (2E) You satisfy this subsection for an income year if the sum of the following is less than $250,000: (a) your taxable income for that year; (b) your * reportable fringe benefits total for that year; (c) your * reportable superannuation contributions for that year; (d) your * total net investment losses for that year. For the purposes of paragraph (a), when working out your taxable income, disregard any excess mentioned in subsection (2) for any * business activity for that year that you could otherwise deduct under this Act for that year. Grouping business activities (3) In applying this Division, you may group together * business activities of a similar kind. Exceptions (4) The rule in subsection (2), (2A) or (2B) does not apply to a * business activity for an income year if: (a) the activity is a * primary production business, or a * professional arts business; and (b) your assessable income for that year (except any * net capital gain) from other sources that do not relate to that activity is less than $40,000. (5) A professional arts business is a * business you carry on as: (a) the author of a literary, dramatic, musical or artistic work; or Note: The expression "author" is a technical term from copyright law. In general, the "author" of a musical work is its composer and the "author" of an artistic work is the artist, sculptor or photographer who created it. (b) a * performing artist; or (c) a * production associate. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.15 Modification if you have exempt income (1) The rule in subsection 35-10(2) may be modified for an income year if you * derived *exempt income in that year. (2) Any amount to which paragraph 35-10(2)(b) would otherwise apply for an income year for you is reduced by so much of your * net exempt income as is not applied for that income year under section 36-10 or 36-15 (about tax losses). This reduction is made before you apply the paragraph 35-10(2)(b) amount against assessable income from the * business activity. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.20 Modification if you become bankrupt (1) The rule in subsection 35-10(2) or (2A) is modified as set out in subsection (3) for an income year if in that year (the current year) you become bankrupt or are released from a debt by the operation of an Act relating to bankruptcy. (2) The rule is also modified as set out in subsection (3) if: (a) you became bankrupt before the current year; and (b) the bankruptcy is annulled in the current year under section 74 of the Bankruptcy Act 1966 because your creditors have accepted a proposal for a composition or scheme of arrangement; and (c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy. (3) This Act applies to you as if any amount that: (a) paragraph 35-10(2)(b) had applied to for an income year before the current year for you; and (b) you have not yet deducted; were not an amount attributable to the * business activity that you can deduct for the current year or a later income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.25 Application of Division to certain partnerships For the purpose of applying the tests in sections 35-30, 35-40 and 35-45 where you carry on a * business activity in an income year as a partner, ignore: (a) any part of the assessable income from the business activity for the year that is attributable to the interest of a partner that is not an individual in the partnership net income or partnership loss for the year; and (b) any part of the assessable income from the business activity for the year that is * derived from the activity by another partner otherwise than as a member of the partnership; and (c) any part of the * reduced cost bases or other values of assets of the partnership used in carrying on the activity in that year that is attributable to the interest of a partner that is not an individual in those assets; and (d) any part of the reduced cost bases or other values of assets owned or leased by another partner that are not partnership assets and used in carrying on the activity in that year. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.30 Assessable income test The rules in section 35-10 do not apply to a * business activity for an income year if: (a) the amount of assessable income from the business activity for the year; or (b) you started to carry on the business activity, or stopped carrying it on, during the year--a reasonable estimate of what would have been the amount of that assessable income if you had carried on that activity throughout the year; is at least $20,000. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.35 Profits test (1) The rules in section 35-10 do not apply to a * business activity (except an activity carried on by one or more individuals as partners, whether or not some other entity is a member of the partnership) for an income year (the current year) if, for each of at least 3 of the past 5 income years (including the current year) the sum of the deductions attributable to that activity for that year (apart from the operation of subsections 35-10(2) and (2C)) is less than the assessable income from the activity for that year. (2) For a * business activity you carried on with one or more others as partners, the rules in section 35-10 do not apply to you for the current year if, for each of at least 3 of the past 5 income years (including the current year) the sum of your deductions (including your share of the partnership deductions) attributable to that activity for that year (apart from the operation of subsections 35-10(2) and (2C)) is less than your assessable income (including your share of the partnership's assessable income) from the activity for that year. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.40 Real property test (1) The rules in section 35-10 do not apply to a * business activity for an income year if the total * reduced cost bases of real property or interests in real property used on a continuing basis in carrying on the activity in that year is at least $500,000. (2) You may use the * market value of the real property or interest if that value is more than its * reduced cost base. (3) The * reduced cost base or *market value is worked out: (a) as at the end of the income year; or (b) if you stopped carrying on the * business activity during the year: (i) as at the time you stopped; or (ii) if you disposed of the asset before that time in the course of stopping carrying on the activity--as at the time you disposed of it. (4) However, these assets are not counted for this test: (a) a * dwelling, and any adjacent land used in association with the dwelling, that is used mainly for private purposes; (b) fixtures owned by you as a tenant. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.45 Other assets test (1) The rules in section 35-10 do not apply to a * business activity for an income year if the total values of assets that are counted for this test (see subsections (2) and (4)) and that are used on a continuing basis in carrying on the activity in that year is at least $100,000. (2) The assets counted for this test, and their values for this test, are set out in this table: Assets counted for this test and their values Item Asset Value 1 An asset whose decline in value you can deduct under Division 40 The asset's * written down value 2 An item of * trading stock Its value under subsection 70-45(1) 3 An asset that you lease from another entity The sum of the amounts of the future lease payments for the asset to which you are irrevocably committed, less an appropriate amount to reflect any interest component for those lease payments 4 Trademarks, patents, copyrights and similar rights Their * reduced cost base (3) The value of such an asset is worked out: (a) as at the end of the income year; or (b) if you stopped carrying on the * business activity during the year: (i) as at the time you stopped; or (ii) if you disposed of the asset before that time in the course of stopping carrying on the activity--as at the time you disposed of it. (4) However, these assets are not counted for this test: (a) assets that are real property or interests in real property that are taken into account for that year under section 35-40; (b) * cars, motor cycles and similar vehicles. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.50 Apportionment If an asset that is being taken into account under section 35-40 or 35-45 is used during an income year partly in carrying on the relevant * business activity and partly for other purposes, only that part of its * reduced cost base, * market value or other value that is attributable to its use in carrying on the business activity in that year is taken into account for that section. INCOME TAX ASSESSMENT ACT 1997 - SECT 35.55 Commissioner's discretion (1) The Commissioner may, on application, decide that the rule in subsection 35-10(2) does not apply to a * business activity for one or more income years (the excluded years) if the Commissioner is satisfied that it would be unreasonable to apply that rule because: (a) the business activity was or will be affected in the excluded years by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster; or Note: This paragraph is intended to provide for a case where a business activity would have satisfied one of the tests if it were not for the special circumstances. (b) for an applicant who carries on the business activity who satisfies subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made--the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not satisfied, or will not satisfy, one of the tests set out in section 35-30, 35-35, 35-40 or 35-45; and (ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will either meet one of those tests or will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C)); or (c) for an applicant who carries on the business activity who does not satisfy subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made--the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not produced, or will not produce, assessable income greater than the deductions attributable to it; and (ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C)). Note: Paragraphs (b) and (c) are intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income. For example, an activity involving the planting of hardwood trees for harvest, where many years would pass before the activity could reasonably be expected to produce income. (2) The Commissioner may, on application, decide that the rule in subsection 35-10(2B) does not apply to a * business activity for an income year if the Commissioner is satisfied that it would be unreasonable to apply that rule because special circumstances of the kind referred to in paragraph (1)(a) of this section prevented the activity from starting. Note: This subsection is intended to provide for a case where a business activity would have begun to be carried on and satisfied one of the tests if it were not for the special circumstances. (3) An application for a decision by the Commissioner under this section must be made in the * approved form. Table of Subdivisions Guide to Division 36 36-A Deductions for tax losses of earlier income years 36-B Effect of you becoming bankrupt 36-C Excess franking offsets Guide to Division 36 INCOME TAX ASSESSMENT ACT 1997 - SECT 36.1 What this Division is about If you have more deductions for an income year than you have income, the difference is a tax loss which you may be able to deduct in a later income year. Table of sections 36-10 How to calculate a tax loss for an income year 36-15 How to deduct tax losses of entities other than corporate tax entities 36-17 How to deduct tax losses of corporate tax entities 36-20 Net exempt income 36-25 Special rules about tax losses INCOME TAX ASSESSMENT ACT 1997 - SECT 36.10 How to calculate a tax loss for an income year (1) Add up the amounts you can deduct for an income year (except * tax losses for earlier income years). (2) Subtract your total assessable income. (3) If you * derived *exempt income, also subtract your *net exempt income (worked out under section 36-20). (4) Any amount remaining is your tax loss for the income year, which is called a loss year. Note 1: Some deductions are limited so that they cannot contribute to a tax loss. See section 26-55 (Limit on certain deductions). Note 2: The meanings of tax loss and loss year are modified by section 36-55 for a corporate tax entity that has an amount of excess franking offsets. INCOME TAX ASSESSMENT ACT 1997 - SECT 36.15 How to deduct tax losses of entities other than corporate tax entities (1) Your * tax loss for a *loss year is deducted in a later income year as follows if you are not a * corporate tax entity at any time during the later income year. Note: See section 36-17 for the deduction of a tax loss of an entity that is a corporate tax entity at any time during the later income year. If you have no net exempt income (2) If your total assessable income for the later income year exceeds your total deductions (other than * tax losses), you deduct the tax loss from that excess. If you have net exempt income (3) If you have * net exempt income for the later income year and your total assessable income (if any) for the later income year exceeds your total deductions (except * tax losses), you deduct the tax loss: (a) first, from your net exempt income; and (b) secondly, from the part of your total assessable income that exceeds those deductions. (4) However, if you have * net exempt income for the later income year and those deductions exceed your total assessable income, then: (a) subtract that excess from your net exempt income; and (b) deduct the tax loss from any net exempt income that remains. To work out your net exempt income: see section 36-20. General (5) If you have 2 or more * tax losses, you deduct them in the order in which you incurred them. (6) A * tax loss can be deducted only to the extent that it has not already been deducted. (7) If you cannot deduct all or part of your * tax loss in an income year, you can carry forward to the next income year the undeducted amount. You then apply this Subdivision to work out if you can deduct the tax loss in that income year. Note: Your tax losses under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E. INCOME TAX ASSESSMENT ACT 1997 - SECT 36.17 How to deduct tax losses of corporate tax entities (1) A * tax loss of an entity for a *loss year is deducted in a later income year as follows if the entity is a * corporate tax entity at any time during the later income year. If the entity has no net exempt income (2) If the entity's total assessable income for the later income year exceeds the entity's total deductions (except * tax losses), the entity is to deduct from that excess so much of the tax loss as the entity chooses. The entity may choose a nil amount. If the entity has net exempt income (3) If the entity has * net exempt income for the later income year and the entity's total assessable income (if any) for that year exceeds the entity's total deductions (except * tax losses), the entity is to: (a) first, deduct the tax loss from the net exempt income; and (b) secondly, deduct from the part of the total assessable income that exceeds those deductions so much of the undeducted amount of the tax loss (if any) as the entity chooses. The entity may choose a nil amount under paragraph (b). Note: To work out the corporate tax entity's net exempt income: see section 36-20. (4) However, if the entity has * net exempt income for the later income year and those deductions exceed the entity's total assessable income, the entity is to: (a) subtract that excess from the net exempt income; and (b) deduct the * tax loss from any net exempt income that remains. Note: This means there is no choice available under this subsection. Limit to how much the entity can choose (5) The choice that the entity has under subsection (2) or (3) for the later income year is subject to both of the following: (a) the entity must choose a nil amount if, disregarding the * tax loss and other tax losses of the entity, the entity would have an amount of * excess franking offsets for that year; (b) if, disregarding the tax loss and other tax losses of the entity, the entity would not have an amount of excess franking offsets for that year--the entity must not choose an amount that would result in the entity having an amount of excess franking offsets for that year. Example: For the 2002-2003 income year, Company A has: * a tax loss of $150 from a previous income year; and * assessable income of $200 (franked distribution of $70, franking credit of $30 and $100 of income from other sources); and * no deductions; and * no net exempt income. The tax offset of $30 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Company A would not have an amount of excess franking offsets for that year if the tax loss were disregarded (see section 36-55). This is because the tax offset of $30 is less than $60, the amount of income tax that Company A would have to pay if it did not have the tax offset and the tax loss. Paragraph (a) therefore does not apply. If Company A chooses to deduct the full amount of the tax loss, it would have an amount of excess franking offsets of $15: Company A therefore cannot make this choice because of paragraph (b). However, if Company A chooses to deduct $100 of the tax loss, it would not have an amount of excess franking offsets: Company A therefore can choose to deduct $100 of the tax loss. (6) The entity must state its choice under subsection (2) or (3) in its * income tax return for the later income year. General (7) If the entity has 2 or more * tax losses, the entity is to deduct them in the order in which the entity incurred them. (8) A * tax loss can be deducted under this section only to the extent that it has not already been deducted. (9) If, under this section, a * corporate tax entity does not or cannot deduct all or part of a * tax loss in an income year, the entity can carry forward the undeducted amount to the next income year. This Subdivision then applies in working out how it can deduct the tax loss in that income year. Note: The entity's tax losses may be reduced if any of its commercial debts have been forgiven in the income year: see Subdivision 245-E. Recalculation of amounts resulting in a choice or a change of a choice (10) Subsection (11) or (12) applies if at least one of the following amounts is recalculated after an entity has lodged its * income tax return for an income year: (a) the amount of a * tax loss that the entity can deduct in that year; (b) the amount of the difference between the entity's total assessable income for that year and the entity's total deductions (other than * tax losses) for that year; (c) the amount of the entity's * net exempt income for that year; whether or not the amount is recalculated in an amendment of the entity's assessment for that year, and whether or not the amount was a nil amount before the recalculation (or has become a nil amount after the recalculation). (11) If: (a) before the recalculation, a choice under subsection (2) or (3) for the income year was not available to the entity; but (b) as a result of the recalculation, the choice has (apart from subsection (6)) become available to the entity; the entity can make that choice by written notice given to the Commissioner. (12) If: (a) the entity made a choice under subsection (2) or (3) for the income year; but (b) as a result of the recalculation, the entity wishes to change that choice; the entity can do so by written notice given to the Commissioner. (13) Subsections (10) to (12) have effect subject to section 170 of the Income Tax Assessment Act 1936 (about amendment of assessments). INCOME TAX ASSESSMENT ACT 1997 - SECT 36.20 Net exempt income (1) If you are an Australian resident, your net exempt income is the amount by which your total * exempt income from all sources exceeds the total of: (a) the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and (b) any taxes payable outside Australia on that exempt income. (2) If you are a foreign resident, your net exempt income is the amount (if any) by which the total of: (a) your * exempt income *derived from sources in Australia; and (b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies; exceeds the total of: (c) the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and (d) any taxes payable outside Australia on income covered by paragraph (b). INCOME TAX ASSESSMENT ACT 1997 - SECT 36.25 Special rules about tax losses Tax losses of individuals Item For the special rules about this situation ... See: 1. You go bankrupt, or you are released from debts under a bankruptcy law: your right to deduct tax losses of an earlier income year may be affected. Subdivision 36-B Tax losses of companies Item For the special rules about this situation ... See: 1. A company has had a change of ownership or control during the income year, and has not satisfied the same business test: it works out its taxable income and its tax loss in a special way. Subdivision 165-B 2. A company wants to deduct a tax loss. It cannot do so unless: • the same people owned the company during the loss year, the income year and any intervening year; and • no person controlled the company's voting power at any time during the income year who did not also control it during the whole of the loss year and any intervening year; or the company has satisfied the same business test. Subdivision 165-A 3. One or more of these things happen: • income is injected into a company; • a tax benefit is obtained from available losses or deductions; • a deduction is injected into a company; • a tax benefit is obtained because of available income. The Commissioner can disallow tax losses or current year deductions. Division 175 4. A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. (Both companies must be members of the same wholly-owned group.) Subdivision 170-A See also: Tax losses of pooled development funds (PDFs) below 5. A * life insurance company Subdivision 320-D Tax losses of corporate tax entities Item For the special rules about this situation... See: 1. A * corporate tax entity that has an amount of *excess franking offsets for an income year: it works out its * tax loss in a special way. Subdivision 36-C Tax losses of entities generally Item For the special rules about this situation ... See: 3. You have deductions in relation to deriving income under section 26AG of the Income Tax Assessment Act 1936 from the proceeds of a film: your tax loss may have a film component, which is deductible from your film income only. Former Subdivision 375-G Tax losses of pooled development funds (PDFs) Item For the special rules about this situation ... See: 1. A company is a pooled development fund (PDF) at the end of an income year for which it has a tax loss: it can only deduct the loss while it is a PDF. Section 195-5 2. A company becomes a PDF during an income year: special rules affect how it works out a tax loss and how the loss is deducted in a later income year. Section 195-15 Tax losses of VCLPs, ESVCLPs, AFOFs and VCMPs Item For the special rules about this situation ... See: 1. A limited partnership that has a tax loss becomes a VCLP, an ESVCLP, an AFOF or a VCMP: it cannot deduct the loss while it is a VCLP, an ESVCLP, an AFOF or a VCMP. Subdivision 195-B Tax losses of entities that become foreign hybrids Item For the special rules about this situation... See: 1. An entity that has a tax loss becomes a * foreign hybrid: it cannot deduct the loss while it is a foreign hybrid. Section 830-115 Tax losses of trusts Item For the special rules about this subsection... See: 1. A trust has had a change of ownership or control or there has been an abnormal trading in its units: • if this happens in the income year, it works out its net income and tax loss in a special way; or • if this happens at any time from the start of a loss year until the end of the income year, it cannot deduct a tax loss from the loss year. This will not be the case if the trust is an excepted trust. However, if it became one by making a family trust election, a special tax may be payable on certain distributions and other amounts. Divisions 266, 267 and 268 in Schedule 2F to the Income Tax Assessment Act 1936 2. A trust is involved in a scheme to take advantage of deductions. The trust may be prevented from making full use of them. Division 270 in Schedule 2F to the Income Tax Assessment Act 1936 Guide to Subdivision 36-B INCOME TAX ASSESSMENT ACT 1997 - SECT 36.30 What this Subdivision is about After you become bankrupt, you cannot deduct a tax loss that you incurred beforehand. However, you may be able to deduct repayments of debts you incurred in the loss year. Table of sections Operative provisions 36-35 No deduction for tax loss incurred before bankruptcy 36-40 Deduction for amounts paid for debts incurred before bankruptcy 36-45 Limit on deductions for amounts paid Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 36.35 No deduction for tax loss incurred before bankruptcy (1) If: (a) you became bankrupt; or (b) you were released from a debt by the operation of an Act relating to bankruptcy; before the income year, you cannot deduct a * tax loss that you incurred before the day on which you either became bankrupt or were released. (2) If: (a) you became bankrupt before the income year; and (b) the bankruptcy is later annulled under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and (c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy; you cannot deduct a * tax loss that you incurred before the day on which you became bankrupt. INCOME TAX ASSESSMENT ACT 1997 - SECT 36.40 Deduction for amounts paid for debts incurred before bankruptcy Tax losses generally (1) If: (a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and (b) you have a * tax loss covered by section 36-35 for that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax loss. Film losses (2) If: (a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and (b) you incurred the debt in the course of deriving or gaining * assessable film income or *exempt film income; and (c) you also incurred a * film loss covered by section 36-35 in that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the film loss. (3) A film loss is the * film component (if any) of a * tax loss. (4) Your * tax loss for an income year has a film component if your * film deductions for the year exceed the sum of: (a) your * assessable film income for the year; and (b) your * net exempt film income for the year. The amount of the film component is the excess or the tax loss, whichever is lesser. (5) However, if your * tax loss worked out under a provision listed in the table, the film component is what that tax loss would have been if: (a) your * film deductions for the *loss year had been your only deductions; and (b) your * assessable film income for the loss year had been your only assessable income; and (c) your * net exempt film income for the loss year had been your only * net exempt income. However, the film component cannot exceed the actual tax loss. Working out film component of tax loss Item Provision Type of entity 1 165-70 Company--income year when ownership or control changed 2 175-35 Company--deductions that have been used to obtain a tax benefit disallowed 3 268-60 in Schedule 2F to the Income Tax Assessment Act 1936 Trust--income year when ownership or control changed INCOME TAX ASSESSMENT ACT 1997 - SECT 36.45 Limit on deductions for amounts paid Tax losses generally (1) The total of your deductions under subsection 36-40(1) for amounts paid in the income year for debts incurred in the * loss year cannot exceed the amount of the * tax loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the tax loss deducted in earlier income years; and (c) any amounts of the tax loss that, apart from section 36-35, would have been deductible from your * net exempt income for the income year or earlier income years. Film losses (2) The total of your deductions under subsection 36-40(2) for amounts paid in the income year for debts incurred in the * loss year cannot exceed the amount of the * film loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the film loss deducted in earlier income years; and (c) any amounts of the film loss that, apart from section 36-35, would have been deductible from your * net exempt film income for the income year or earlier income years. Guide to Subdivision 36-C INCOME TAX ASSESSMENT ACT 1997 - SECT 36.50 What this Subdivision is about Amounts of tax offsets to which a corporate tax entity is entitled under Division 207 and Subdivision 210-H may in some circumstances be converted into an amount of a tax loss for the entity. Table of sections Operative provision 36-55 Converting excess franking offsets into tax loss Operative provision INCOME TAX ASSESSMENT ACT 1997 - SECT 36.55 Converting excess franking offsets into tax loss Excess franking offsets (1) An entity that is a * corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if: (a) the total amount of * tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25); exceeds: (b) the amount of income tax that the entity would have to pay on its taxable income for that year if: (i) it did not have those tax offsets; and (ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and (iii) it did not have any tax offset under section 205-70; but had all its other tax offsets. The excess is the amount of excess franking offsets. Note: Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules. Example: For the 2002-2003 income year, Company E has: * assessable income of $200 (franked distribution of $140 and franking credit of $60); and * $100 of deductions that are allowable. The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30: This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year. How to work out the amount of the tax loss (2) For the purposes of this Act, if: (a) an entity has an amount of * excess franking offsets for an income year; and (b) the result of applying the following method statement is a positive amount; then: (c) the entity is taken to have a * tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10, 165-70, 175-35 or 701-30); and (d) that year is taken to be a * loss year for the entity if the entity would not otherwise have a tax loss for that year. Method statement Step 1. Work out the amount (if any) that would have been the entity's * tax loss for that year under section 36-10, 165-70, 175-35 or 701-30 if the entity's * net exempt income for that year (if any) were disregarded. Note: See section 36-20 for the calculation of net exempt income. Step 2. Divide the amount of * excess franking offsets by the * corporate tax rate. Step 3. Add the results of steps 1 and 2. Step 4. Reduce the result of step 3 by the entity's * net exempt income for that year (if any). The result of this step is taken to be the entity's * tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year. Example: Assume that company E did not derive any exempt income for the 2002-2003 income year and that it would not otherwise have any tax loss for that year under section 36-10, 165-70, 175-35 or 701-30. Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17. Contents Chapter 2--Liability rules of general application i Part 2-10--Capital allowances: rules about deductibility of capital expenditure 1 Division 40--Capital allowances 1 Guide to Division 40 1 40-1....... What this Division is about................................................................. 1 40-10..... Simplified outline of this Division...................................................... 2 Subdivision 40-A--Objects of Division 4 40-15..... Objects of Division............................................................................. 4 Subdivision 40-B--Core provisions 4 Guide to Subdivision 40-B 4 40-20..... What this Subdivision is about............................................................ 4 Operative provisions 6 40-25..... Deducting amounts for depreciating assets......................................... 6 40-30..... What a depreciating asset is................................................................ 8 40-35..... Jointly held depreciating assets........................................................... 9 40-40..... Meaning of hold a depreciating asset................................................ 10 40-45..... Assets to which this Division does not apply................................... 12 40-50..... Assets for which you deduct under another Subdivision.................. 13 40-53..... Alterations etc. to certain depreciating assets..................................... 13 40-55..... Use of certain car methods................................................................ 14 40-60..... When a depreciating asset starts to decline in value........................... 14 40-65..... Choice of methods to work out the decline in value.......................... 14 40-70..... Diminishing value method................................................................ 16 40-72..... Diminishing value method for post-9 May 2006 assets.................... 17 40-75..... Prime cost method............................................................................. 18 40-80..... When you can deduct the asset's cost............................................... 21 40-85..... Meaning of adjustable value and opening adjustable value of a depreciating asset 22 40-90..... Debt forgiveness............................................................................... 22 40-95..... Choice of determining effective life................................................... 23 40-100... Commissioner's determination of effective life................................. 30 40-102... Capped life of certain depreciating assets.......................................... 31 40-105... Self-assessing effective life............................................................... 33 40-110... Recalculating effective life................................................................. 34 40-115... Splitting a depreciating asset............................................................. 36 40-120... Replacement spectrum licences......................................................... 37 40-125... Merging depreciating assets.............................................................. 37 40-130... Choices............................................................................................. 38 40-135... Certain anti-avoidance provisions..................................................... 38 40-140... Getting tax information from associates............................................ 38 Subdivision 40-C--Cost 40 Guide to Subdivision 40-C 40 40-170... What this Subdivision is about.......................................................... 40 Operative provisions 40 40-175... Cost................................................................................................... 40 40-180... First element of cost.......................................................................... 41 40-185... Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 43 40-190... Second element of cost...................................................................... 45 40-195... Apportionment of cost...................................................................... 47 40-200... Exclusion from cost.......................................................................... 47 40-205... Cost of a split depreciating asset....................................................... 47 40-210... Cost of merged depreciating assets................................................... 48 40-215... Adjustment: double deduction........................................................... 48 40-220... Cost reduced by amounts not of a capital nature............................... 48 40-225... Adjustment: acquiring a car at a discount.......................................... 48 40-230... Adjustment: car limit......................................................................... 49 Subdivision 40-D--Balancing adjustments 49 Guide to Subdivision 40-D 49 40-280... What this Subdivision is about.......................................................... 49 Operative provisions 50 40-285... Balancing adjustments....................................................................... 50 40-290... Reduction for non-taxable use........................................................... 52 40-292... Adjustments--assets used for both general tax purposes and R&D activities 53 40-293... Adjustments--partnership assets used for both general tax purposes and R&D activities 55 40-295... Meaning of balancing adjustment event............................................ 56 40-300... Meaning of termination value........................................................... 57 40-305... Amount you are taken to have received under a balancing adjustment event 59 40-310... Apportionment of termination value.................................................. 60 40-320... Car to which section 40-225 applies................................................. 61 40-325... Adjustment: car limit......................................................................... 61 40-335... Deduction for in-house software where you will never use it........... 61 40-340... Roll-over relief.................................................................................. 62 40-345... What the roll-over relief is................................................................. 65 40-350... Additional consequences................................................................... 65 40-360... Notice to allow transferee to work out how this Division applies..... 65 40-365... Involuntary disposals........................................................................ 66 40-370... Balancing adjustments where there has been use of different car expense methods 68 Subdivision 40-E--Low-value and software development pools 70 Guide to Subdivision 40-E 70 40-420... What this Subdivision is about.......................................................... 70 Operative provisions 71 40-425... Allocating assets to a low-value pool................................................ 71 40-430... Rules for assets in low-value pools................................................... 72 40-435... Private or exempt use of assets......................................................... 73 40-440... How you work out the decline in value of assets in low-value pools 73 40-445... Balancing adjustment events............................................................. 74 40-450... Software development pools............................................................. 75 40-455... How to work out your deduction...................................................... 75 40-460... Your assessable income includes consideration for pooled software 76 Subdivision 40-F--Primary production depreciating assets 76 Guide to Subdivision 40-F 76 40-510... What this Subdivision is about.......................................................... 76 Operative provisions 77 40-515... Water facilities and horticultural plants.............................................. 77 40-520... Meaning of water facility and horticultural plant.............................. 78 40-525... Conditions......................................................................................... 78 40-530... When a water facility or horticultural plant starts to decline in value. 80 40-535... Meaning of horticulture and commercial horticulture...................... 80 40-540... How you work out the decline in value for water facilities............... 80 40-545... How you work out the decline in value for horticultural plants......... 81 40-555... Amounts you cannot deduct.............................................................. 82 40-560... Non-arm's length transactions.......................................................... 83 40-565... Extra deduction for destruction of a horticultural plant...................... 83 40-570... How this Subdivision applies to partners and partnerships............... 84 40-575... Getting tax information if you acquire a horticultural plant............... 85 Subdivision 40-G--Capital expenditure of primary producers and other landholders 86 Guide to Subdivision 40-G 86 40-625... What this Subdivision is about.......................................................... 86 Operative provisions 87 40-630... Landcare operations.......................................................................... 87 40-635... Meaning of landcare operation........................................................ 89 40-640... Meaning of approved management plan.......................................... 90 40-645... Electricity and telephone lines........................................................... 90 40-650... Amounts you cannot deduct under this Subdivision......................... 91 40-655... Meaning of connecting power to land or upgrading the connection and metering point 93 40-660... Non-arm's length transactions.......................................................... 94 40-665... How this Subdivision applies to partners and partnerships............... 94 40-670... Approval of persons as farm consultants.......................................... 95 40-675... Review of decisions relating to approvals......................................... 95 Subdivision 40-H--Capital expenditure that is immediately deductible 95 Guide to Subdivision 40-H 95 40-725... What this Subdivision is about.......................................................... 95 Operative provisions 96 40-730... Deduction for expenditure on exploration or prospecting................. 96 40-735... Deduction for expenditure on mining site rehabilitation.................... 98 40-740... Meaning of ancillary mining activities and mining building site....... 99 40-745... No deduction for certain expenditure.............................................. 100 40-750... Deduction for payments of petroleum resource rent tax.................. 100 40-755... Environmental protection activities.................................................. 101 40-760... Limits on deductions from environmental protection activities........ 102 40-765... Non-arm's length transactions........................................................ 103 Subdivision 40-I--Capital expenditure that is deductible over time 103 Guide to Subdivision 40-I 103 40-825... What this Subdivision is about........................................................ 103 Operative provisions 104 40-830... Project pools................................................................................... 104 40-832... Project pools for post-9 May 2006 projects.................................... 105 40-835... Reduction of deduction................................................................... 106 40-840... Meaning of project amount............................................................. 107 40-845... Project life....................................................................................... 108 40-855... When you start to deduct amounts for a project pool...................... 108 40-860... Meaning of mining capital expenditure........................................... 108 40-865... Meaning of transport capital expenditure....................................... 110 40-870... Meaning of transport facility.......................................................... 111 40-875... Meaning of processed minerals and minerals treatment................ 111 40-880... Business related costs..................................................................... 112 40-885... Non-arm's length transactions........................................................ 115 Subdivision 40-J--Capital expenditure for the establishment of trees in carbon sink forests 115 Guide to Subdivision 40-J 115 40-1000. What this Subdivision is about........................................................ 115 Operative provisions 116 40-1005. Deduction for expenditure for establishing trees in carbon sink forests 116 40-1010. Expenditure for establishing trees in carbon sink forests................ 117 40-1015. Carbon sequestration by trees........................................................ 119 40-1020. Certain expenditure disregarded...................................................... 119 40-1025. Non-arm's length transactions........................................................ 120 Division 41--Additional deduction for certain new business investment 121 Guide to Division 41 121 41-1....... What this Division is about............................................................. 121 Operative provisions 122 41-5....... Object of Division........................................................................... 122 41-10..... Entitlement to deduction for investment.......................................... 122 41-15..... Amount of deduction...................................................................... 123 41-20..... Recognised new investment amount............................................... 125 41-25..... Investment commitment time........................................................... 126 41-30..... First use time................................................................................... 127 41-35..... New investment threshold............................................................... 128 Division 43--Deductions for capital works 129 Guide to Division 43 129 43-1....... What this Division is about............................................................. 129 43-2....... Key concepts used in this Division................................................. 129 Subdivision 43-A--Key operative provisions 131 Guide to Subdivision 43-A 131 43-5....... What this Subdivision is about........................................................ 131 Operative provisions 131 43-10..... Deductions for capital works.......................................................... 131 43-15..... Amount you can deduct.................................................................. 132 43-20..... Capital works to which this Division applies.................................. 132 43-25..... Rate of deduction............................................................................ 134 43-30..... No deduction until construction is complete.................................... 134 43-35..... Requirement for registration under the Industry Research and Development Act 134 43-40..... Deduction for destruction of capital works..................................... 135 43-45..... Certain anti-avoidance provisions................................................... 135 43-50..... Links and signposts to other parts of the Act.................................. 136 43-55..... Anti-avoidance--arrangement etc. with tax-exempt entity.............. 137 Subdivision 43-B--Establishing the deduction base 138 Guide to Subdivision 43-B 138 43-60..... What this Subdivision is about........................................................ 138 43-65..... Explanatory material........................................................................ 138 Operative provisions 139 43-70..... What is construction expenditure?................................................... 139 43-72..... Meaning of forestry road, timber operation and timber mill building 141 43-75..... Construction expenditure area......................................................... 141 43-80..... When capital works begin............................................................... 143 43-85..... Pools of construction expenditure................................................... 143 43-90..... Table of intended use at time of completion of construction............ 144 43-95..... Meaning of hotel building and apartment building......................... 147 43-100... Certificates by Innovation Australia................................................ 148 Subdivision 43-C--Your area and your construction expenditure 148 Guide to Subdivision 43-C 148 43-105... What this Subdivision is about........................................................ 148 43-110... Explanatory material........................................................................ 149 Operative provisions 149 43-115... Your area and your construction expenditure--owners.................. 149 43-120... Your area and your construction expenditure--lessees and quasi-ownership right holders 149 43-125... Lessees' or right holders' pools can revert to owner....................... 150 43-130... Identifying your area on acquisition or disposal.............................. 150 Subdivision 43-D--Deductible uses of capital works 151 Guide to Subdivision 43-D 151 43-135... What this Subdivision is about........................................................ 151 Operative provisions 151 43-140... Using your area in a deductible way............................................... 151 43-145... Using your area in the 4% manner.................................................. 154 43-150... Meaning of industrial activities....................................................... 158 Subdivision 43-E--Special rules about uses 160 Guide to Subdivision 43-E 160 43-155... What this Subdivision is about........................................................ 160 Operative provisions 161 43-160... Your area is used for a purpose if it is maintained ready for use for the purpose 161 43-165... Temporary cessation of use............................................................. 161 43-170... Own use--capital works other than hotel and apartment buildings. 161 43-175... Own use--hotel and apartment buildings....................................... 162 43-180... Special rules for hotel and apartment buildings............................... 163 43-185... Residential or display use................................................................ 164 43-190... Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house 165 43-195... Use for R&D activities must be in connection with a business....... 166 Subdivision 43-F--Calculation of deduction 166 Guide to Subdivision 43-F 166 43-200... What this Subdivision is about........................................................ 166 43-205... Explanatory material........................................................................ 166 Operative provisions 168 43-210... Deduction for capital works begun after 26 February 1992............ 168 43-215... Deduction for capital works begun before 27 February 1992......... 170 43-220... Capital works taken to have begun earlier for certain purposes....... 171 Subdivision 43-G--Undeducted construction expenditure 172 Guide to Subdivision 43-G 172 43-225... What this Subdivision is about........................................................ 172 Operative provisions 172 43-230... Calculating undeducted construction expenditure--common step... 172 43-235... Post-26 February 1992 undeducted construction expenditure......... 173 43-240... Pre-27 February 1992 undeducted construction expenditure.......... 174 Subdivision 43-H--Balancing deduction on destruction of capital works 174 Guide to Subdivision 43-H 174 43-245... What this Subdivision is about........................................................ 174 Operative provisions 175 43-250... The amount of the balancing deduction........................................... 175 43-255... Amounts received or receivable...................................................... 175 43-260... Apportioning amounts received for destruction.............................. 176 Division 45--Disposal of leases and leased plant 177 Guide to Division 45 177 45-1....... What this Division is about............................................................. 177 Operative provisions 178 45-5....... Disposal of leased plant or lease..................................................... 178 45-10..... Disposal of interest in partnership................................................... 180 45-15..... Disposal of shares in 100% subsidiary that leases plant................. 182 45-20..... Disposal of shares in 100% subsidiary that leases plant in partnership 183 45-25..... Group members liable to pay outstanding tax................................. 184 45-30..... Reduction for certain plant acquired before 21.9.99........................ 185 45-35..... Limit on amount included for plant for which there is a CGT exemption 186 45-40..... Meaning of plant and written down value....................................... 186 Part 2-15--Non-assessable income 188 Division 50--Exempt entities 188 Subdivision 50-A--Various exempt entities 188 50-1....... Entities whose ordinary income and statutory income is exempt..... 189 50-5....... Charity, education, science and religion.......................................... 189 50-10..... Community service......................................................................... 190 50-15..... Employees and employers............................................................... 190 50-20..... Funds contributing to other funds................................................... 191 50-25..... Government.................................................................................... 191 50-30..... Health.............................................................................................. 192 50-35..... Mining............................................................................................ 192 50-40..... Primary and secondary resources, and tourism............................... 192 50-45..... Sports, culture and recreation.......................................................... 193 50-50..... Special conditions for items 1.1 and 1.2.......................................... 194 50-52..... Special condition for items 1.1, 1.5, 1.5A, 1.5B and 4.1................. 194 50-55..... Special conditions for items 1.3, 1.4, 6.1 and 6.2............................ 195 50-57..... Special condition for item 1.5.......................................................... 195 50-60..... Special conditions for items 1.5A and 1.5B.................................... 195 50-65..... Special conditions for item 1.6........................................................ 196 50-70..... Special conditions for items 1.7, 2.1, 9.1 and 9.2............................ 196 50-72..... Special condition for item 4.1.......................................................... 197 50-75..... Certain distributions may be made overseas.................................... 197 50-80..... Testamentary trusts may be treated as 2 trusts................................. 198 Subdivision 50-B--Endorsing charitable entities as exempt from income tax 198 Guide to Subdivision 50-B 198 50-100... What this Subdivision is about........................................................ 198 Endorsing charitable entities as exempt from income tax 199 50-105... Endorsement by Commissioner...................................................... 199 50-110... Entitlement to endorsement............................................................. 199 Division 51--Exempt amounts 201 51-1....... Amounts of ordinary income and statutory income that are exempt 201 51-5....... Defence........................................................................................... 202 51-10..... Education and training..................................................................... 203 51-30..... Welfare............................................................................................ 205 51-32..... Compensation payments for loss of tax exempt payments.............. 207 51-33..... Compensation payments for loss of pay and/or allowances as a Defence reservist 208 51-35..... Payments to a full-time student at a school, college or university.... 209 51-40..... Payments to a secondary student..................................................... 210 51-42..... Bonuses for early completion of an apprenticeship......................... 210 51-43..... Income collected or derived by copyright collecting society............ 210 51-45..... Income collected or derived by resale royalty collecting society...... 211 51-50..... Maintenance payments to a spouse or child.................................... 212 51-52..... Income derived from eligible venture capital investments by ESVCLPs 212 51-54..... Gain or profit from disposal of eligible venture capital investments 214 51-55..... Gain or profit from disposal of venture capital equity..................... 215 51-57..... Interest on judgment debt relating to personal injury....................... 215 51-60..... Prime Minister's Prizes................................................................... 216 Division 52--Certain pensions, benefits and allowances are exempt from income tax 217 Guide to Division 52 217 52-1....... What this Division is about............................................................. 217 Subdivision 52-A--Exempt payments under the Social Security Act 1991 218 Guide to Subdivision 52-A 218 52-5....... What this Subdivision is about........................................................ 218 Operative provisions 218 52-10..... How much of a social security payment is exempt?........................ 218 52-15..... Supplementary amounts of payments.............................................. 235 52-20..... Tax-free amount of an ordinary payment after the death of your partner 237 52-25..... Tax-free amount of certain bereavement lump sum payments......... 239 52-30..... Tax-free amount of certain other bereavement lump sum payments 241 52-35..... Tax-free amount of a lump sum payment made because of the death of a person you are caring for 242 52-40..... Provisions of the Social Security Act 1991 under which payments are made 243 Subdivision 52-B--Exempt payments under the Veterans' Entitlements Act 1986 246 Guide to Subdivision 52-B 246 52-60..... What this Subdivision is about........................................................ 246 Operative provisions 247 52-65..... How much of a veterans' affairs payment is exempt?..................... 247 52-70..... Supplementary amounts of payments.............................................. 251 52-75..... Provisions of the Veterans' Entitlements Act 1986 under which payments are made 252 Subdivision 52-C--Exempt payments made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 253 Guide to Subdivision 52-C 253 52-100... What this Subdivision is about........................................................ 253 Operative provisions 254 52-105... Supplementary amount of a payment made under the Repatriation Act 1920 is exempt 254 52-110... Other exempt payments................................................................... 255 Subdivision 52-CA--Exempt payments under the Military Rehabilitation and Compensation Act 2004 256 Guide to Subdivision 52-CA 256 52-112... What this Subdivision is about........................................................ 256 Operative provisions 256 52-114... How much of a payment under the Military Rehabilitation and Compensation Act is exempt? 256 Subdivision 52-CB--Exempt payments under the Australian Participants in British Nuclear Tests (Treatment) Act 2006 260 52-117... Payments of travelling expenses are exempt................................... 260 Subdivision 52-D--Exempt payments made by the Commonwealth to reimburse certain expenditure 260 52-125... Private health insurance incentive payments are exempt.................. 260 Subdivision 52-E--Exempt payments under the ABSTUDY scheme 260 Guide to Subdivision 52-E 260 52-130... What this Subdivision is about........................................................ 260 Operative provisions 261 52-131... Payments under ABSTUDY scheme.............................................. 261 52-132... Supplementary amount of payment................................................. 263 52-133... Tax-free amount of ordinary payment on death of partner if no bereavement payment payable 263 52-134... Tax-free amount if you receive a bereavement lump sum payment. 264 Subdivision 52-F--Exemption of Commonwealth education or training payments 265 52-140... Supplementary amount of a Commonwealth education or training payment is exempt 265 52-145... Meaning of Commonwealth education or training payment............ 266 Subdivision 52-G--Exempt payments under the A New Tax System (Family Assistance) (Administration) Act 1999 267 52-150... Family assistance payments are exempt.......................................... 267 Subdivision 52-H--Other exempt payments 268 52-160... Economic security strategy payments are exempt............................ 268 52-165... Household stimulus payments are exempt...................................... 268 52-170... Outer Regional and Remote payments under the Helping Children with Autism package are exempt 268 52-172... Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt 268 52-175... Continence aids payments are exempt............................................. 268 Division 53--Various exempt payments 269 Guide to Division 53 269 53-1....... What this Division is about............................................................. 269 Operative provisions 269 53-10..... Exemption of various types of payments........................................ 269 53-15..... Supplementary amount of exceptional circumstances relief payment or farm help income support 271 53-20..... Exemption of similar Australian and United Kingdom veterans' payments 272 Division 54--Exemption for certain payments made under structured settlements and structured orders 273 Guide to Division 54 273 54-1....... What this Division is about............................................................. 273 Subdivision 54-A--Definitions 273 Operative provisions 274 54-5....... Definitions...................................................................................... 274 54-10..... Meaning of structured settlement and structured order.................. 274 Subdivision 54-B--Tax exemption for personal injury annuities 277 Operative provisions 277 54-15..... Personal injury annuity exemption for injured person..................... 277 54-20..... Lump sum compensation etc. would not have been assessable....... 277 54-25..... Requirements of the annuity instrument.......................................... 277 54-30..... Requirements for payments of the annuity...................................... 278 54-35..... Payments during the guarantee period on the death of the injured person 279 54-40..... Requirement for minimum monthly level of support....................... 280 Subdivision 54-C--Tax exemption for personal injury lump sums 282 Operative provisions 283 54-45..... Personal injury lump sum exemption for injured person................. 283 54-50..... Lump sum compensation would not have been assessable............. 283 54-55..... Requirements of the instrument under which the lump sum is paid 283 54-60..... Requirements for payments of the lump sum.................................. 284 Subdivision 54-D--Miscellaneous 285 Operative provisions 285 54-65..... Exemption for certain payments to reversionary beneficiaries......... 285 54-70..... Special provisions about trusts........................................................ 285 54-75..... Minister to arrange for review and report........................................ 286 Division 55--Payments that are not exempt from income tax 288 Guide to Division 55 288 55-1....... What this Division is about............................................................. 288 Operative provisions 288 55-5....... Occupational superannuation payments.......................................... 288 55-10..... Education entry payments............................................................... 289 Table of Subdivisions Guide to Division 40 40-A Objects of Division 40-B Core provisions 40-C Cost 40-D Balancing adjustments 40-E Low-value and software development pools 40-F Primary production depreciating assets 40-G Capital expenditure of primary producers and other landholders 40-H Capital expenditure that is immediately deductible 40-I Capital expenditure that is deductible over time 40-J Capital expenditure for the establishment of trees in carbon sink forests Guide to Division 40 INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1 What this Division is about You can deduct an amount equal to the decline in value of a depreciating asset (an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used) that you hold. That decline is generally measured by reference to the effective life of the asset. You can also deduct amounts for certain other capital expenditure. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.10 Simplified outline of this Division The key concepts about depreciating assets and certain other capital expenditure are outlined below (in bold italics). Simplified outline of this Division Item Major topic Subordinate topics Rules Provisions 1 Rules about depreciating assets 1.1 Core provisions Depreciating assets are assets with a limited effective life that are reasonably expected to decline in value. Broadly, the effective life of a depreciating asset is the period it can be used to produce income. The decline in value is based on the cost and effective life of the depreciating asset, not its actual change in value. It begins at start time, when you begin to use the asset (or when you have it installed ready for use). It continues while you use the asset (or have it installed). Usually, the owner of a depreciating asset holds the asset and can therefore claim deductions for its decline in value. Sometimes the economic owner will be different to the legal owner and the economic owner will be the holder. Subdivision 40-B 1.2 Cost The cost of a depreciating asset includes both: * expenses you incur to start holding the asset; and * additional expenses that contribute to its present condition and location (e.g. improvements). Subdivision 40-C 1.3 Balancing adjustments When you stop holding a depreciating asset you may have to include an amount in your assessable income, or deduct an amount under a balancing adjustment. The adjustment reconciles the decline with the actual change in value. Subdivision 40-D 1.4 Low-value and software development pools Low-cost assets and assets depreciated to a low value may be placed in a low value pool, which is treated as a single depreciating asset. You can also pool in-house software expenditure in a software development pool. Subdivision 40-E 1.5 Primary production depreciating assets You can deduct amounts for capital expenditure on: * water facilities over 3 income years; or * horticultural plants over a period that relates to the effective life of the plant. Subdivision 40-F 2 Rules about other capital expenditure 2.1 Capital expenditure of primary producers and other landholders You can deduct amounts for capital expenditure on: * landcare operations immediately; or * electricity and telephone lines over 10 income years. Subdivision 40-G 2.2 Capital expenditure that is immediately deductible You can get an immediate deduction for certain capital expenditure on: * exploration or prospecting; and * rehabilitation of mine and quarry sites; and * paying petroleum taxes; and * environmental protection activities. Subdivision 40-H 2.3 Capital expenditure that is deductible over time You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amount over the life of the project using a project pool. You can also deduct amounts for certain business related costs over 5 years where the amounts are not otherwise taken into account and are not denied a deduction. Subdivision 40-I 2.4 Capital expenditure for establishing trees in carbon sink forests You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests. Subdivision 40-J Table of sections 40-15 Objects of Division INCOME TAX ASSESSMENT ACT 1997 - SECT 40.15 Objects of Division The objects of this Division are: (a) to allow you to deduct the * cost of a *depreciating asset; and (b) to spread the deduction over a period that reflects the time for which the asset can be used to obtain benefits; and (c) to provide deductions for certain other capital expenditure that is not otherwise deductible. Note 1: This Division does not apply to some depreciating assets: see section 40-45. Note 2: The application of this Division to a life insurance company is affected by sections 320-200 and 320-255. Guide to Subdivision 40-B INCOME TAX ASSESSMENT ACT 1997 - SECT 40.20 What this Subdivision is about The rules that apply to most depreciating assets are in this Subdivision. It explains: • what a depreciating asset is; and • when you start deducting amounts for depreciating assets; and • how to work out your deductions. It also contains rules for splitting and merging depreciating assets. Table of sections Operative provisions 40-25 Deducting amounts for depreciating assets 40-30 What a depreciating asset is 40-35 Jointly held depreciating assets 40-40 Meaning of hold a depreciating asset 40-45 Assets to which this Division does not apply 40-50 Assets for which you deduct under another Subdivision 40-53 Alterations etc. to certain depreciating assets 40-55 Use of certain car methods 40-60 When a depreciating asset starts to decline in value 40-65 Choice of methods to work out the decline in value 40-70 Diminishing value method 40-72 Diminishing value method for post-9 May 2006 assets 40-75 Prime cost method 40-80 When you can deduct the asset's cost 40-85 Meaning of adjustable value and opening adjustable value of a depreciating asset 40-90 Debt forgiveness 40-95 Choice of determining effective life 40-100 Commissioner's determination of effective life 40-102 Capped life of certain depreciating assets 40-105 Self-assessing effective life 40-110 Recalculating effective life 40-115 Splitting a depreciating asset 40-120 Replacement spectrum licences 40-125 Merging depreciating assets 40-130 Choices 40-135 Certain anti-avoidance provisions 40-140 Getting tax information from associates Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.25 Deducting amounts for depreciating assets You deduct the decline in value (1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a * depreciating asset that you * held for any time during the year. Note 1: Sections 40-70, 40-72 and 40-75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsections 40-70(3), 40-72(3) and 40-75(7). Note 2: Small business entities can choose to both deduct and work out the amount they can deduct under Division 328. Note 3: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35. Reduction of deduction (2) You must reduce your deduction by the part of the asset's decline in value that is attributable to your use of the asset, or your having it * installed ready for use, for a purpose other than a *taxable purpose. Example: Ben holds a depreciating asset that he uses for private purposes for 30% of his total use in the income year. If the asset declines by $1,000 for the year, Ben would have to reduce his deduction by $300 (30% of $1,000). Further reduction: leisure facilities (3) You may have to make a further reduction for a * depreciating asset that is a *leisure facility attributable to your use of it, or your having it * installed ready for use, for a *taxable purpose. (4) That reduction is the part of the * leisure facility's decline in value that is attributable to your use of it, or your having it * installed ready for use, at a time when: (a) its use did not constitute a * fringe benefit; or (b) you did not use it or * hold it for use as mentioned in paragraph 26-50(3)(b) (about using it in the course of your business or for your employees). Exception: low-value pools (5) Subsections (2), (3) and (4) do not apply to * depreciating assets allocated to a low-value pool. Despite subsection (1), you can continue to deduct an amount equal to the decline in value for an income year (as worked out under this Division) of such an asset even though you do not continue to * hold that asset. Note: See Subdivision 40-E for low-value pools. Exception: Use of 1 /3 of actual expenses method for a car (6) Subsections (2), (3) and (4) do not apply to a * car for an income year for which you use the "one-third of actual expenses" method. Instead, you reduce your deduction by 2 /3 of the car's decline in value. Note: See Division 28 for that method. Meaning of taxable purpose (7) Subject to subsection (8), a taxable purpose is: (a) the * purpose of producing assessable income; or (b) the purpose of * exploration or prospecting; or (c) the purpose of * mining site rehabilitation; or (d) * environmental protection activities. Note 1: Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243. Note 2: When this Division notionally applies under section 355-310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities. (8) If Division 250 applies to you and an asset that is a * depreciating asset: (a) if section 250-150 applies--you are taken to be using the asset for a * taxable purpose to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you are taken not to be using the asset for such a purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.30 What a depreciating asset is (1) A depreciating asset is an asset that has a limited * effective life and can reasonably be expected to decline in value over the time it is used, except: (a) land; or (b) an item of * trading stock; or (c) an intangible asset, unless it is mentioned in subsection (2). (2) These intangible assets are depreciating assets if they are not * trading stock: (a) * mining, quarrying or prospecting rights; (b) * mining, quarrying or prospecting information; (c) items of * intellectual property; (d) *in-house software; (e) *IRUs; (f) *spectrum licences; (g) * datacasting transmitter licences; (h) * telecommunications site access rights. (3) This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land. Note 1: Whether such an asset is a depreciating asset depends on whether it falls within the definition in subsection (1). Note 2: This Division does not apply to capital works for which you can deduct amounts under Division 43: see subsection 40-45(2). (4) Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case. Example 1: A car is made up of many separate components, but usually the car is a depreciating asset rather than each component. Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate depreciating assets. (5) This Division applies to a renewal or extension of a * depreciating asset that is a right as if the renewal or extension were a continuation of the original right. (6) This Division applies to a * mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you * held if: (a) the other right ends; and (b) the new right and the other right relate to the same area, or any difference in area is not significant. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.35 Jointly held depreciating assets (1) This Division and Divisions 41, 328 and 775 apply to a * depreciating asset (the underlying asset) that you * hold, and that is also held by one or more other entities, as if your interest in the underlying asset were itself the underlying asset. Note: Partners do not hold partnership assets: see section 40-40. (2) As a result, the decline in value of the underlying asset is not itself taken into account. Example: Buford Corp owns an office block that it leases to 2 companies, Smokey Pty Ltd and Bandit Pty Ltd. Smokey and Bandit decide to install a fountain in front of the building. They discuss it with Buford who agrees to pay half the cost (because the fountain won't be removable at the end of the lease). Smokey and Bandit split the rest of the cost between them. Smokey and Bandit would each hold the asset under item 3 of the table in section 40-40 and Buford would hold it under item 10. They would be joint holders, so each would write-off its interest in the fountain. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.40 Meaning of hold a depreciating asset Use this table to work out who holds a * depreciating asset. An entity identified in column 3 of an item in the table as not holding a depreciating asset cannot hold the asset under another item. Identifying the holder of a depreciating asset Item This kind of depreciating asset: Is held by this entity: 1 A * car in respect of which a lease has been granted that was a * luxury car when the lessor first leased it The lessee (while the lessee has the * right to use the car) and not the lessor 2 A * depreciating asset that is fixed to land subject to a *quasi-ownership right (including any extension or renewal of such a right) where the owner of the right has a right to remove the asset The owner of the quasi-ownership right (while the right to remove exists) 3 An improvement to land (whether a fixture or not) subject to a * quasi-ownership right (including any extension or renewal of such a right) made, or itself improved, by any owner of the right for the owner's own use where the owner of the right has no right to remove the asset The owner of the quasi-ownership right (while it exists) 4 A * depreciating asset that is subject to a lease where the asset is fixed to land and the lessor has the right to recover the asset The lessor (while the right to recover exists) 5 A right that an entity legally owns but which another entity (the economic owner) exercises or has a right to exercise immediately, where the economic owner has a right to become its legal owner and it is reasonable to expect that: (a) the economic owner will become its legal owner; or (b) it will be disposed of at the direction and for the benefit of the economic owner The economic owner and not the legal owner 6 A * depreciating asset that an entity (the former holder) would, apart from this item, hold under this table (including by another application of this item) where a second entity (also the economic owner): (a) possesses the asset, or has a right as against the former holder to possess the asset immediately; and (b) has a right as against the former holder the exercise of which would make the economic owner the holder under any item of this table; and it is reasonable to expect that the economic owner will become its holder by exercising the right, or that the asset will be disposed of at the direction and for the benefit of the economic owner The economic owner and not the former holder 7 A * depreciating asset that is a partnership asset The partnership and not any particular partner 8 * Mining, quarrying or prospecting information that an entity has and that is relevant to: (a) * mining operations carried on, or proposed to be carried on by the entity; or (b) a * business carried on by the entity that includes *exploration or prospecting for * minerals or quarry materials obtainable by such operations; whether or not it is generally available The entity 9 Other * mining quarrying or prospecting information that an entity has and that is not generally available The entity 10 Any * depreciating asset The owner, or the legal owner if there is both a legal and equitable owner Example 1: Power Finance leases a luxury car to Kris who subleases it to Rachael. As lessee, item 1 makes Rachael the holder of the car. Power, as the legal owner, would normally hold the car under item 10. However, item 1 makes it clear that Power, as lessor, does not hold the car. As the lessee, item 1 would normally mean that Kris held the car but, again, she is also a lessor and so is not the holder (she also doesn't have the right to use the car during the sublease). Example 2: Sandra sells a packing machine to Jenny under a hire purchase agreement. Jenny holds the machine under item 6 because, although she is not the legal owner until she exercises her option to purchase, she possesses the machine now and can exercise an option to become its legal owner. Jenny is reasonably expected to exercise that option because the final payment will be well below the expected market value of the machine at the end of the agreement. Sandra, as the machine's legal owner, would normally be its holder under item 10 but item 6 makes it clear that the legal owner is not the holder. Note 1: Some assets may have holders under more than one item in the table. Note 2: As well as hire purchase agreements, items 5 and 6 cover cases like assets subject to chattel mortgages, sales subject to retention of title clauses and assets subject to bare trusts. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.45 Assets to which this Division does not apply Eligible work related items (1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act). Capital works (2) This Division does not apply to capital works for which you can deduct amounts under Division 43, or for which you could deduct amounts under that Division: (a) but for expenditure being incurred, or capital works being started, before a particular day; or (b) had you used the capital works for a purpose relevant to those capital works under section 43-140. Note: Section 43-20 lists the capital works to which that Division applies. Films (5) This Division does not apply to a * depreciating asset if you or another taxpayer has deducted or can deduct amounts for it under: (a) former Division 10BA of Part III of the Income Tax Assessment Act 1936 (about Australian films); or (b) former Division 10B of Part III of that Act if the depreciating asset relates to a copyright in an Australian film within the meaning of that Division. (6) This Division applies to a * depreciating asset that is copyright in a * film where a company is entitled to a *tax offset under section 376-55 in respect of the film as if the asset's * cost were reduced by the amount of that offset. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.50 Assets for which you deduct under another Subdivision (1) You cannot deduct an amount, or work out a decline in value, for a * depreciating asset under this Subdivision if you or another taxpayer has deducted or can deduct amounts for it under Subdivision 40-F (about primary production depreciating assets), 40-G (about capital expenditure of primary producers and other landholders) or 40-J (about capital expenditure for the establishment of trees in carbon sink forests). (2) You cannot deduct an amount, or work out a decline in value, for * in-house software under this Subdivision if you have allocated expenditure on the software to a software development pool under Subdivision 40-E. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.53 Alterations etc. to certain depreciating assets (1) These things are not the same * depreciating asset for the purposes of section 40-50 and Subdivision 40-F: (a) a depreciating asset; and (b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a * water facility. (2) These things are not the same * depreciating asset for the purposes of section 40-50 and Subdivision 40-G: (a) a depreciating asset; and (b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a * landcare operation. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.55 Use of certain car methods You cannot deduct any amount for the decline in value of a * car for an income year if you use the "cents per kilometre" method, or the "12% of original value" method, for the car for that year. Note: See Division 28 for those methods. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.60 When a depreciating asset starts to decline in value (1) A * depreciating asset you *hold starts to decline in value from when its * start time occurs. (2) The start time of a * depreciating asset is when you first use it, or have it * installed ready for use, for any purpose. Note: Previous use by a transition entity is ignored: see section 58-70. (3) However, there is another start time for a * depreciating asset you * hold if a * balancing adjustment event referred to in paragraph 40-295(1)(b) occurs for the asset and you start to use the asset again. Its second start time is when you start using it again. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.65 Choice of methods to work out the decline in value (1) You have a choice of 2 methods to work out the decline in value of a * depreciating asset. You must choose to use either the *diminishing value method or the * prime cost method. Note 1: Once you make the choice for an asset, you cannot change it: see section 40-130. Note 2: For the diminishing value method, see sections 40-70 and 40-72. For the prime cost method, see section 40-75. Note 3: In some cases you do not have to make the choice because you can deduct the asset's cost: see section 40-80. Exception: asset acquired from associate (2) For a * depreciating asset that you acquire from an * associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you must use the same method that the associate was using. Note: You can require the associate to tell you which method the associate was using: see section 40-140. Exception: holder changes but user same or associate of former user (3) For a * depreciating asset that you acquire from a former * holder of the asset, you must use the same method that the former holder was using for the asset if: (a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an * associate of the former user uses the asset. (4) However, you must use the * diminishing value method if: (a) you do not know, and cannot readily find out, which method the former holder was using; or (b) the former holder did not use a method. Exception: low-value pools (5) You work out the decline in value of a * depreciating asset in a low-value pool under Subdivision 40-E rather than under this Subdivision. Exception: also notionally deductible under R&D provisions (6) If: (a) only one of the following events has happened: (i) you have deducted one or more amounts under this Division for an asset; (ii) you have been entitled under section 355-100 (about R&D) to one or more * tax offsets because you can deduct one or more amounts under section 355-305 for an asset; but (b) later, the other event happens for the asset; then, for the purposes of working out the deduction for the later event, you must choose the same method that you chose for the first event. Note 1: Deductions under section 355-305 (about decline in value of tangible depreciating assets used for R&D activities) are worked out using a notional application of this Division. Note 2: This subsection applies with changes if you have or could have deducted an amount under former section 73BA of the Income Tax Assessment Act 1936 for the asset (see section 40-67 of the Income Tax (Transitional Provisions) Act 1997). (7) If: (a) the events in paragraph (6)(a) could both arise for the same period for an asset; and (b) neither event has already arisen for the asset; then you must choose the same method for the purposes of working out the deduction for each event. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.70 Diminishing value method (1) You work out the decline in value of a * depreciating asset for an income year using the diminishing value method in this way: where: "base value" is: (a) for the income year in which the asset's * start time occurs--its * cost; or (b) for a later year--the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year. "days held" is the number of days you * held the asset in the income year from its *start time, ignoring any days in that year when you did not use the asset, or have it *installed ready for use, for any purpose.Note: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases. Exception: intangibles (2) You cannot use the * diminishing value method to work out the decline in value of: (a) * in-house software; or (b) an item of * intellectual property (except copyright in a * film); or (c) a * spectrum licence; or (d) a * datacasting transmitter licence; or (e) a * telecommunications site access right. Limit on decline (3) The decline in value of a * depreciating asset under this section for an income year cannot be more than the amount that is the asset's base value in the formula in subsection (1) for that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.72 Diminishing value method for post-9 May 2006 assets (1) You work out the decline in value of a * depreciating asset for an income year using the diminishing value method in this way if you started to * hold the asset on or after 10 May 2006: where: "base value" has the same meaning as in subsection 40-70(1). "days held" has the same meaning as in subsection 40-70(1).Note: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases. Exception: intangibles (2) You cannot use the * diminishing value method to work out the decline in value of: (a) * in-house software; or (b) an item of * intellectual property (except copyright in a * film); or (c) a * spectrum licence; or (d) a * datacasting transmitter licence; or (e) a * telecommunications site access right. Limit on decline (3) The decline in value of a * depreciating asset under this section for an income year cannot be more than the amount that is the asset's base value in the formula in subsection (1) for that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.75 Prime cost method (1) You work out the decline in value of a * depreciating asset for an income year using the prime cost method in this way: where: where: "days held" has the same meaning as in subsection 40-70(1).Example: Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 31 /3 years, the asset would decline in value in that year by: The asset's adjustable value at the end of the income year is: (2) However, you must adjust the formula in subsection (1) for an income year (the change year): (a) for which you recalculate the * depreciating asset's * effective life; or (b) after the year in which the asset's start time occurs and in which an amount is included in the second element of the asset's * cost; or (c) for which the asset's * opening adjustable value is reduced under section 40-90 (about debt forgiveness); or (e) for which there is a reduction to the asset's opening adjustable value under paragraph 40-365(5)(b) (about involuntary disposals) where you are using the prime cost method; or (f) for which the opening adjustable value of the asset is modified under subsection 27-80(3A) or (4), 27-85(3) or 27-90(3); or (g) for which there is a reduction in the asset's opening adjustable value under section 775-70; or (h) for which there is an increase in the asset's opening adjustable value under section 775-75. The adjustments apply for the change year and later years. Note 1: For recalculating a depreciating asset's effective life: see section 40-110. Note 2: You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355-605 of the Income Tax (Transitional Provisions) Act 1997). (3) The adjustments are: (a) instead of the asset's * cost, you use its *opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and (b) instead of the asset's * effective life, you use its * remaining effective life. (4) The remaining effective life of a * depreciating asset is any period of its * effective life that is yet to elapse as at: (a) the start of the change year; or (b) in the case of a roll-over under section 40-340--the time when the * balancing adjustment event occurs for the transferor. Note: Effective life is worked out in years and fractions of years. (5) You must also adjust the formula in subsection (1) for an intangible * depreciating asset that: (a) is mentioned in an item in the table in subsection 40-95(7) (except item 5, 7 or 8); and (b) you acquire from a former * holder of the asset. The adjustment applies for the income year in which you acquire the asset and later income years. (6) Instead of the asset's * effective life under the table in subsection 40-95(7), you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset. Limit on decline (7) The decline in value of a * depreciating asset under this section for an income year cannot be more than: (a) for the income year in which the asset's * start time occurs--its * cost; or (b) for a later year--the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.80 When you can deduct the asset's cost Exploration or prospecting (1) The decline in value of a * depreciating asset you * hold is the asset's * cost if: (a) you first use the asset for * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining operations; and (b) when you first use the asset, you do not use it for: (i) development drilling for * petroleum; or (ii) operations in the course of working a mining property, quarrying property or petroleum field; and (c) you satisfy one or more of these subparagraphs at the asset's * start time: (i) you carry on * mining operations; (ii) it would be reasonable to conclude you proposed to carry on such operations; (iii) you carry on a * business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and expenditure on the asset was necessarily incurred in carrying on that business. Depreciating assets used for certain purposes (2) The decline in value of a * depreciating asset you start to * hold in an income year is the asset's * cost if: (a) that cost does not exceed $300; and (b) you use the asset predominantly for the * purpose of producing assessable income that is not income from carrying on a * business; and (c) the asset is not one that is part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and (d) the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.85 Meaning of adjustable value and opening adjustable value of a depreciating asset (1) The adjustable value of a * depreciating asset at a particular time is: (a) if you have not yet used it or had it * installed ready for use for any purpose--its * cost; or (b) for a time in the income year in which you first use it, or have it installed ready for use, for any purpose--its cost less its decline in value up to that time; or (c) for a time in a later income year--the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year up to that time, less its decline in value for that year up to that time. Note: The adjustable value of a depreciating asset may be modified by section 250-285. (2) The opening adjustable value of a * depreciating asset for an income year is its * adjustable value to you at the end of the previous income year. Note: The opening adjustable value of a depreciating asset may be modified by one of these provisions: (a) Subdivision 27-B; (b) subsection 40-90(3); (c) subsection 40-285(4); (d) paragraph 40-365(5)(b); (e) section 775-70; (f) section 775-75; (g) section 355-605 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.90 Debt forgiveness (1) This section applies if an amount (the debt forgiveness amount) is applied in reduction of expenditure for a * depreciating asset in an income year under section 245-155 or 245-157. (2) The asset's * cost is reduced for that income year by the debt forgiveness amount. (3) The asset's * opening adjustable value for that income year is reduced by the debt forgiveness amount if that income year is later than the one in which its * start time occurs. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.95 Choice of determining effective life (1) You must choose either: (a) to use an * effective life determined by the Commissioner for a * depreciating asset under section 40-100; or (b) to work out the effective life of the asset yourself under section 40-105. Note: If you choose to use an effective life determined by the Commissioner for a depreciating asset, a capped life may apply to the asset under section 40-102. (2) Your choice of an * effective life determined by the Commissioner for a * depreciating asset is limited to one in force as at: (a) the time when you entered into a contract to acquire the asset, you otherwise acquired it or you started to construct it if its * start time occurs within 5 years of that time; or (b) for * plant that you entered into a contract to acquire, you otherwise acquired or you started to construct before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999--the time when you entered into the contract to acquire it, otherwise acquired it or started to construct it; or (c) otherwise--its * start time. (3) You must make the choice for the income year in which the asset's * start time occurs. Note: For rules about choices: see section 40-130. Exception: asset acquired from associate (4) For a * depreciating asset that you start to *hold where the former holder is an * associate of yours and the associate has deducted or can deduct an amount for the asset under this Division, you must use: (a) if the associate was using the * diminishing value method for the asset--the same * effective life that the associate was using; or (b) if the associate was using the * prime cost method--an effective life equal to any period of the asset's effective life the associate was using that is yet to elapse at the time you started to hold it. Note: You can require the associate to tell you which effective life the associate was using: see section 40-140. (4A) Subsection (4) does not apply to a * depreciating asset if subsection (4B) or (4C) applies to the asset. (4B) For a * depreciating asset that you start to *hold if: (a) the former holder is an * associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the associate) that applied to the associate under subsection 40-102(3); and (d) a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and (e) the item referred to in paragraph (d) would have applied to the asset at the relevant time for the associate if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it; you must use: (f) if the associate was using the * diminishing value method for the asset--an * effective life equal to the *capped life that would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; or (g) if the associate was using the * prime cost method--an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it. Note 1: If paragraph (e) is not satisfied, subsection (4C) may apply to the depreciating asset. Note 2: You can require the associate to tell you the relevant time that applied to the associate under subsection 40-102(3): see section 40-140. (4C) For a * depreciating asset that you start to *hold if: (a) the former holder is an * associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40-102 applied to the asset immediately before you started to hold it; and (d) one of the following applies: (i) no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (4B) would apply to the asset but for paragraph (e) of that subsection not being satisfied; you must use: (e) if the associate was using the * diminishing value method for the asset--the *effective life determined by the Commissioner for the asset under section 40-100 that the associate would have used if section 40-102 had not applied to the asset; or (f) if the associate was using the * prime cost method--an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that: (i) the associate would have used if section 40-102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. Note: You can require the associate to tell you which effective life the associate would have used if section 40-102 had not applied to the asset: see section 40-140. Exception: holder changes but user same or associate of former user (5) For a * depreciating asset that you start to *hold where: (a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an * associate of the former user uses the asset; you must use: (c) if the former holder was using the * diminishing value method for the asset--the same * effective life that the former holder was using; or (d) if the former holder was using the * prime cost method--an effective life equal to any period of the asset's effective life the former holder was using that is yet to elapse at the time you started to hold it. (5A) Subsection (5) does not apply to a * depreciating asset if subsection (5B) or (5C) applies to the asset. (5B) For a * depreciating asset that you start to * hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the former holder) that applied to the former holder under subsection 40-102(3); and (c) a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and (d) the item referred to in paragraph (c) would have applied to the asset at the relevant time for the former holder if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it; you must use: (e) if the former holder was using the * diminishing value method for the asset--an * effective life equal to the *capped life that would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; or (f) if the former holder was using the * prime cost method--an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it. Note: If paragraph (d) is not satisfied, subsection (5C) may apply to the depreciating asset. (5C) For a * depreciating asset that you start to *hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40-102 applied to the asset immediately before you started to hold it; and (c) one of the following applies: (i) no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (5B) would apply to the asset but for paragraph (d) of that subsection not being satisfied; you must use: (d) if the former holder was using the * diminishing value method for the asset--the * effective life determined by the Commissioner for the asset under section 40-100 that the former holder would have used if section 40-102 had not applied to the asset; or (e) if the former holder was using the * prime cost method--an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that: (i) the former holder would have used if section 40-102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. (6) However, you must use an * effective life determined by the Commissioner if: (a) you do not know, and cannot readily find out, which effective life the former holder was using and, if subsection (5B) or (5C) applied to the asset, either of the following matters: (i) the effective life the former holder would have used if section 40-102 had not applied to the asset; (ii) the relevant time that applied to the former holder under subsection 40-102(3); or (b) the former holder did not use an effective life. Exception: intangible depreciating assets (7) The effective life of an intangible * depreciating asset mentioned in this table is the period applicable to that asset under the table. Effective life of certain intangible depreciating assets Item For this asset: The effective life is: 1 Standard patent 20 years 2 Innovation patent 8 years 3 Petty patent 6 years 4 Registered design 15 years 5 Copyright (except copyright in a * film) The shorter of: (a) 25 years from when you acquire the copyright; or (b) the period until the copyright ends 6 A licence (except one relating to a copyright or * in-house software) The term of the licence 7 A licence relating to a copyright (except copyright in a * film) The shorter of: (a) 25 years from when you become the licensee; or (b) the period until the licence ends 8 * In-house software 4 years 9 * Spectrum licence The term of the licence 10 * Datacasting transmitter licence 15 years 14 * Telecommunications site access right The term of the right (8) The effective life of an intangible * depreciating asset that is not mentioned in the table in subsection (7) and is not an * IRU or a *mining, quarrying or prospecting right cannot be longer than the term of the asset as extended by any reasonably assured extension or renewal of that term. (9) The effective life of an * IRU is the * effective life of the telecommunications cable over which the IRU is granted. Exception: mining, quarrying or prospecting rights (10) The effective life of a * mining, quarrying or prospecting right is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 3 of this table: Item For this asset: Estimate the period until the end of: 1 A * mining, quarrying or prospecting right relating to * mining operations (except obtaining * petroleum or quarry materials) The life of the mine or proposed mine to which the right relates or, if there is more than one, the life of the mine that has the longest estimated life 2 A * mining, quarrying or prospecting right relating to *mining operations to obtain * petroleum The life of the petroleum field or proposed petroleum field to which the right relates 3 A * mining, quarrying or prospecting right relating to *mining operations to obtain quarry materials The life of the quarry or proposed quarry to which the right relates or, if there is more than one, the life of the quarry that has the longest estimated life (11) You work out the period in subsection (10): (a) as from the * start time of the *mining, quarrying or prospecting right; and (b) by reference only to the period of time over which the reserves, reasonably estimated using an appropriate accepted industry practice, are expected to be extracted from the mine, petroleum field or quarry. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.100 Commissioner's determination of effective life (1) The Commissioner may make a written determination specifying the effective life of * depreciating assets. The determination may specify conditions for particular depreciating assets. (2) A determination may specify a day from which it takes effect for * depreciating assets specified in the determination. (3) A determination may operate retrospectively to a day specified in the determination if: (a) there was no applicable determination at that day for the * depreciating asset covered by the determination; or (b) the determination specifies a shorter * effective life for the depreciating asset covered by the determination than was previously applicable. Criteria for making a determination (4) The Commissioner is to make a determination of the effective life of a * depreciating asset in accordance with subsections (5) and (6). (5) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: (a) a * taxable purpose; (b) the purpose of producing * exempt income or *non-assessable non-exempt income; (c) the purpose of conducting * R&D activities, assuming that this is reasonably likely. (6) Secondly, if relevant for the asset: (a) assume the asset will be subject to wear and tear at a rate that is reasonable for the Commissioner to assume; and (b) assume the asset will be maintained in reasonably good order and condition; and (c) have regard to the period within which the asset is likely to be scrapped, sold for no more than scrap value or abandoned. However, for paragraph (c), disregard reasons attributable to the technical risk in conducting * R&D activities if it is reasonably likely that the asset will be used for such activities. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.102 Capped life of certain depreciating assets (1) If this section applies to a * depreciating asset, the effective life of the asset is the period (the capped life) that applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)). Working out if this section applies (2) This section applies to a * depreciating asset if: (a) you choose, under paragraph 40-95(1)(a), to use an * effective life determined by the Commissioner for the asset under section 40-100; and (b) your choice is limited to a determination in force at the time mentioned in paragraph 40-95(2)(a) or (c); and (c) a * capped life applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)); and (d) the capped life is shorter than the effective life mentioned in paragraph (a). (3) For the purposes of this section, the relevant time is: (a) the * start time of the * depreciating asset if: (i) paragraph 40-95(2)(c) applies to you; or (ii) paragraph 40-95(2)(a) applies to you and a * capped life does not apply to the asset under subsection (4) or (5) at the time mentioned in that paragraph; or (iii) paragraph 40-95(2)(a) applies to you and the capped life that applies to the asset under subsection (4) or (5) at the time mentioned in that paragraph is longer than the capped life that applies to the asset at its start time; or (b) if paragraph (a) does not apply--the time mentioned in paragraph 40-95(2)(a). Capped life (4) If the * depreciating asset corresponds exactly to the description in column 2 of the table, the capped life of the asset is the period specified in column 3 of the table. Capped life of certain depreciating assets Item Kind of depreciating asset Period 1 Aeroplane used predominantly for agricultural spraying or agricultural dusting 8 years 2 Aeroplane to which item 1 does not apply 10 years 3 Helicopter used predominantly for mustering, agricultural spraying or agricultural dusting 8 years 4 Helicopter to which item 3 does not apply 10 years 5 Bus with a * gross vehicle mass of more than 3.5 tonnes 7.5 years 6 Light commercial vehicle with a * gross vehicle mass of 3.5 tonnes or less and designed to carry a load of 1 tonne or more 7.5 years 7 Minibus with a * gross vehicle mass of 3.5 tonnes or less and designed to carry 9 or more passengers 7.5 years 8 Trailer with a * gross vehicle mass of more than 4.5 tonnes 10 years 9 Truck with a * gross vehicle mass of more than 3.5 tonnes (other than a truck that is used in * mining operations and that is not of a kind that can be registered to be driven on a public road in the place in which the truck is operated) 7.5 years (5) If the * depreciating asset is of a kind described in column 2 of the table and is used in the industry specified in column 3 of the table for the asset, the capped life of the asset is the period specified in column 4 of the table. Capped life of certain depreciating assets used in specified industries Item Kind of depreciating asset Industry in which the asset is used Period 1 Gas transmission asset Gas supply 20 years 2 Gas distribution asset Gas supply 20 years 3 Oil production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years 4 Gas production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years 5 Offshore platform Oil and gas extraction 20 years 6 Asset (other than an electricity generation asset) used to manufacture condensate, crude oil, domestic gas, liquid natural gas or liquid petroleum gas but not if the manufacture occurs in an oil refinery Petroleum refining 15 years 7 Harvester Primary production sector 6 2 /3 years 8 Tractor Primary production sector 6 2 /3 years INCOME TAX ASSESSMENT ACT 1997 - SECT 40.105 Self-assessing effective life (1) You work out the effective life of a * depreciating asset yourself in accordance with this section. (1A) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: (a) a * taxable purpose; (b) the purpose of producing * exempt income or *non-assessable non-exempt income; (c) the purpose of conducting * R&D activities, assuming that this is reasonably likely. (1B) Secondly, if relevant for the asset: (a) have regard to the wear and tear you reasonably expect from your expected circumstances of use; and (b) assume that the asset will be maintained in reasonably good order and condition. (2) If, in working out that period, you decide that the asset would be likely to be: (a) scrapped; or (b) sold for no more than scrap value or abandoned; before the end of that period, its effective life ends at the earlier time. However, when making your decision, disregard reasons attributable to the technical risk in conducting * R&D activities if it is reasonably likely that the asset will be used for such activities. (3) You work out the period mentioned in subsection (1A) or (2) beginning at the * start time of the *depreciating asset. Exception: intangibles (4) This section does not apply to the following intangible * depreciating assets: (a) assets to which an item in the table in subsection 40-95(7) applies; (b) * mining, quarrying or prospecting rights. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.110 Recalculating effective life (1) You may choose to recalculate the * effective life of a * depreciating asset from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the use of the asset. Example: Some examples of changes in circumstances that may result in your recalculating the effective life of a depreciating asset are: * your use of the asset turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner's determination); * there is a downturn in demand for the goods or services the asset is used to produce that will result in the asset being scrapped; * legislation prevents the asset's continued use; * changes in technology make the asset redundant; * there is an unexpected demand, or lack of success, for a film. (2) You must recalculate a * depreciating asset's * effective life from a later income year if: (a) you: (i) self-assessed its effective life; or (ii) are using an effective life worked out under section 40-100 (about the Commissioner's determination), or 40-102 (about the capped life of certain depreciating assets), and the * prime cost method; or (iii) are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and (b) its * cost is increased in that year by at least 10%. Note 1: You may conclude that the effective life is the same. Note 2: For the elements of the cost of a depreciating asset, see Subdivision 40-C. Example 1: Paul purchases a photocopier and self-assesses its effective life at 6 years. In a later year he incurs expenditure to increase the quality of the reproductions it makes. He recalculates its effective life, but concludes that it remains the same. Example 2: Fiona also purchases a photocopier and self-assesses its effective life at 6 years. In a later year she incurs expenditure to incorporate a more robust paper handling system. She recalculates its effective life, and concludes that it is increased to 7 years. (3) You must recalculate a * depreciating asset's * effective life for the income year in which you started to * hold it if: (a) you are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and (b) the asset's * cost is increased after you started to hold it in that year by at least 10%. (3A) Subsections (1), (2) and (3) do not apply to a * depreciating asset that is a * mining, quarrying or prospecting right. (3B) You may choose to recalculate the * effective life of a *mining, quarrying or prospecting right from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right relates. (4) A recalculation under this section must be done using: (a) if paragraph (b) does not apply--section 40-105 (about self-assessing effective life); or (b) if the * depreciating asset is a *mining, quarrying or prospecting right--subsections 40-95(10) and (11). Exception: intangibles (5) This section does not apply to an intangible * depreciating asset to which an item in the table in subsection 40-95(7) applies. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.115 Splitting a depreciating asset (1) If a * depreciating asset you *hold is split into 2 or more assets, this Division applies as if you had stopped holding the original asset and started holding the assets into which it is split. Note 1: For the cost of the split assets, see section 40-205. Note 2: A balancing adjustment event does not occur just because you split a depreciating asset: see section 40-295. (2) If you stop * holding part of a *depreciating asset, this Division applies as if, just before you stopped holding that part, you had split the original asset into the part you stopped holding and the rest of the original asset. (The rest of the original asset is then taken to be a different asset from the original asset.) Example: Bronwyn sells Tim a part interest in a depreciating asset she owns. They become joint holders under section 40-35. She is taken to have split the underlying asset into the interest she retains and the interest Tim buys. She now holds an interest (a new depreciating asset) in the underlying asset and is taken to have stopped holding the interest sold. (3) If you grant or assign an interest in an item of * intellectual property, subsection (2) applies to you as if you had stopped * holding part of the item. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.120 Replacement spectrum licences (1) If: (a) some (but not all) of a * spectrum licence you * hold is assigned or resumed; and (b) your original licence is replaced by one or more other spectrum licences (possibly including a modified version of your original licence); and (c) the replacement licences together cover exactly the same rights as were covered by your original licence just after the assignment or resumption; this Division applies as if your original licence (as it existed just after the assignment or resumption) had been split into the replacement licences. Example: MGP Communications Ltd buys a spectrum licence on 1 July 2003 for $5 million. The licence specifies areas A, B, C and D. The company assigns the spectrum relating to area C. Area C represents 20% of the market value of the overall licence. $1m of the adjustable value is allocated to it and $4m is allocated to the remaining licence. The Australian Communications and Media Authority adjusts the licence to specify only areas A and B, and issues a new licence specifying area D. Area D represents 25% of the market value of the spectrum remaining in the licence. The adjustable value of the new licence is therefore $1m and the adjustable value of the original (modified) licence is $3m. (2) If a * spectrum licence you *hold is replaced by 2 or more spectrum licences (possibly including a modified version of your original licence) that together cover exactly the same rights as your original licence, this Division applies as if the original licence had been split into the replacement licences. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.125 Merging depreciating assets If a * depreciating asset or assets that you *hold is or are merged into another depreciating asset, this Division applies as if you had stopped holding the original asset or assets and started holding the merged asset. Note 1: For the cost of the merged asset, see section 40-210. Note 2: A balancing adjustment event does not occur just because you merge depreciating assets: see section 40-295. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.130 Choices (1) A choice you can make under this Division about a * depreciating asset must be made: (a) by the day you lodge your * income tax return for the income year to which the choice relates; or (b) within a further time allowed by the Commissioner. (2) Your choice, once made, applies to that income year and all later income years. Exception: recalculating effective life (3) However, subsection (2) does not apply to a choice to recalculate the * effective life of a *depreciating asset under section 40-110. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.135 Certain anti-avoidance provisions These anti-avoidance provisions: (a) section 51AD (Deductions not allowable in respect of property under certain leveraged arrangements) of the Income Tax Assessment Act 1936; (b) Division 16D (Certain arrangements relating to the use of property) of Part III of that Act; apply to your deductions under this Division for a * depreciating asset you * hold as if you were the owner of the asset instead of any other person. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.140 Getting tax information from associates (1) If you acquire a * depreciating asset from an *associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you may give the associate a written notice requiring the associate to tell you: (a) the method the associate was using to work out the decline in value of the asset; and (b) the * effective life the associate was using; and (c) if section 40-102 applied to the asset at any time: (i) the effective life that the associate would have used if section 40-102 had not applied to the asset; and (ii) the relevant time that applied to the associate under subsection 40-102(3). (2) The notice must: (a) be given within 60 days of your acquiring the asset; and (b) specify a period of at least 60 days within which the information must be given; and (c) set out the effect of subsection (3). Note: Subsections (4) and (5) explain how this subsection operates if the associate is a partnership. Requirement to comply with notice (3) The * associate must not intentionally refuse or fail to comply with the notice. Penalty: 10 penalty units. Giving the notice to a partnership (4) If the * associate is a partnership: (a) you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and (b) the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them. (5) A partner must not intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it. Penalty: 10 penalty units. Limits on giving a notice (6) Only one notice can be given in relation to the same * depreciating asset. Guide to Subdivision 40-C INCOME TAX ASSESSMENT ACT 1997 - SECT 40.170 What this Subdivision is about Your cost of a depreciating asset is a component in working out the amounts you can deduct for it. There are 2 elements of the cost of a depreciating asset. This Subdivision shows you how to work out those elements. Table of sections Operative provisions 40-175 Cost 40-180 First element of cost 40-185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 40-190 Second element of cost 40-195 Apportionment of cost 40-200 Exclusion from cost 40-205 Cost of a split depreciating asset 40-210 Cost of merged depreciating assets 40-215 Adjustment: double deduction 40-220 Cost reduced by amounts not of a capital nature 40-225 Adjustment: acquiring a car at a discount 40-230 Adjustment: car limit Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.175 Cost The cost of a * depreciating asset you * hold consists of 2 elements. Note: The cost of a depreciating asset may be modified by one of these provisions: * subsection 40-90(2); * paragraph 40-365(5)(a); * section 775-70; * section 775-75. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.180 First element of cost (1) The first element is worked out as at the time when you began to * hold the *depreciating asset (except for a case to which item 3 or 4 of the table in subsection (2) applies). It is: (a) if an item in that table applies--the amount specified in that item; or (b) otherwise--the amount you are taken to have paid to hold the asset under section 40-185. Note 1: The first element of the cost may be modified by a later provision in this Subdivision. Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) If more than one item in this table covers the asset, apply the last item that covers it. First element of the cost of a depreciating asset Item In this case: The cost is: 1 A * depreciating asset you *hold is split into 2 or more assets For each of the assets into which it is split, the amount worked out under section 40-205 2 A * depreciating asset or assets that you *hold is or are merged into another depreciating asset For the other asset, the amount worked out under section 40-210 3 A * balancing adjustment event happens to a *depreciating asset you * hold because you stop using it for any purpose expecting never to use it again, and you continue to hold it The * termination value of the asset at the time of the event 4 A * balancing adjustment event happens to a *depreciating asset you * hold but have not used because you expect never to use it, and you continue to hold it The * termination value of the asset at the time of the event 5 A partnership asset that was * held, just before it became a partnership asset, by one or more partners (whether or not any other entity was a joint holder) or a partnership asset to which subsection 40-295(2) applies The * market value of the asset when the partnership started to hold it or when the change referred to in subsection 40-295(2) occurred 6 There is roll-over relief under section 40-340 for a * balancing adjustment event happening to a * depreciating asset The * adjustable value of the asset to the transferor just before the balancing adjustment event occurred 7 You are the legal owner of a * depreciating asset that is hired under a * hire purchase agreement and you start * holding it because the entity to whom it is hired does not become the legal owner The * market value of the asset when you started to hold it 8 You started to * hold the asset under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this item, the first element of the asset's cost would exceed its * market value The market value of the asset when you started to hold it 9 You started to * hold the asset under an *arrangement that was private or domestic in nature to you (for example, a gift) The * market value of the asset when you started to hold it 10 The * Finance Minister has determined a cost for you under section 49A, 49B, 50A, 50B, 51A or 51B of the Airports (Transitional) Act 1996 The cost so determined 11 To which Division 58 (which deals with assets previously owned by an * exempt entity) applies The amount applicable under subsections 58-70(3) and (5) 12 A * balancing adjustment event happens to a *depreciating asset because a person dies and the asset devolves to you as the person's * legal personal representative The asset's * adjustable value on the day the person died or, if the asset is allocated to a low-value pool, so much of the * closing pool balance for the income year in which the person died as is reasonably attributable to the asset 13 You started to * hold a *depreciating asset because it *passed to you as the beneficiary or a joint tenant The * market value of the asset when you started to hold it reduced by any * capital gain that was disregarded under section 128-10 or subsection 128-15(3), whether by the deceased or by the * legal personal representative (3) The first element of * cost includes an amount you paid or are taken to have paid in relation to starting to * hold the *depreciating asset if that amount is directly connected with holding the asset. (4) The first element of * cost of a *depreciating asset does not include an amount that forms part of the second element of cost of another depreciating asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit (1) This Division applies to you as if you had paid, to * hold a * depreciating asset or for an economic benefit for such an asset, the greater of these amounts: (a) the sum of the amounts that would have been included in your assessable income because you started to hold the asset or received the benefit, or because you gave something to start holding the asset or receive the benefit, if you ignored the value of anything you gave that reduced the amount actually included; or (b) the sum of the applicable amounts set out in this table in relation to holding the asset or receiving the benefit. Example 1: Gold Medals Ltd manufactures some medals for a local sporting association's annual meeting in return for a die cut stamping machine. The medals have a market value of $20,000. The machine has an arm's length value of $100,000 but Gold Medals has to contribute $75,000 towards acquiring it from the association. Gold Medals will have to include: in its assessable income because of section 21A of the Income Tax Assessment Act 1936. The first element of the machine's cost will be the greater of: * the amount it paid ($75,000) plus the market value of the non-cash benefits it provided ($20,000), which comes to $95,000; and * the amount that was assessable income from receiving the machine ($25,000) plus the amount by which that assessable income was reduced because of the payment Gold Medals made ($75,000), which comes to $100,000. So, in this case, the first element of the machine's cost to Gold Medals is $100,000. Example 2: Laura travels overseas to purchase a purpose-built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are "in relation to starting to hold" the vehicle. Amount you are taken to have paid to hold a depreciating asset or to receive a benefit Item In this case: The amount is: 1 You pay an amount The amount 2 You incur or increase a liability to pay an amount The amount of the liability or increase when you incurred or increased it 3 All or part of a liability to pay an amount owed to you by another entity is terminated The amount of the liability or part when it is terminated 4 You provide a * non-cash benefit The * market value of the non-cash benefit when it is provided 5 You incur or increase a liability to provide a * non-cash benefit The * market value of the non-cash benefit or the increase when you incurred or increased the liability 6 All or part of a liability to provide a * non-cash benefit (except the * depreciating asset) owed to you by another entity is terminated The * market value of the non-cash benefit when the liability is terminated Note 1: Item 1 includes not only amounts actually paid but also amounts taken to have been paid. Examples include the price of the notional purchase made when trading stock is converted to a depreciating asset under section 70-110, the cost of an asset held under a hire purchase arrangement under section 240-25 and a lessor's deemed purchase price when a luxury car lease ends under subsection 242-90(3). Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) In applying the table in subsection (1) to a liability of yours to pay an amount or provide a * non-cash benefit, don't count any part of the liability you have already satisfied. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.190 Second element of cost (1) The second element is worked out after you start to * hold the * depreciating asset. (2) The second element is: (a) the amount you are taken to have paid under section 40-185 for each economic benefit that has contributed to bringing the asset to its present condition and location from time to time since you started to * hold the asset; and (b) expenditure you incur that is reasonably attributable to a * balancing adjustment event occurring for the asset. Example 1: Andrew adds a new tray and canopy to his ute. The materials and labour that go into the addition are economic benefits that Andrew received and that contribute to the ute's present condition. The payments he makes for those economic benefits are included in the second element of the ute's cost. Example 2: Leonie needed to replace one of her old depreciating assets that was fixed to her land with a new, more efficient one. Leonie paid a contractor a fee to demolish and remove the old asset. This resulted in a balancing adjustment event occurring for the old asset, and the fee forms part of the second element of the cost of the old asset that was demolished. Note: The second element of the cost may be modified by a later provision in this Subdivision. (2A) Paragraph (2)(b) does not apply to a * balancing adjustment event referred to in item 6 or 11 of the table in subsection 40-300(2). (3) However, the second element is worked out using this table if an item in it applies. Use the last applicable item. Second element of the cost of a depreciating asset Item In this case: The second element of cost is: 1 You received the benefit under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this item, the second element of cost for the benefit would exceed its * market value The market value of the benefit when you received it 2 You received the benefit under an * arrangement that was private or domestic in nature to you The * market value of the benefit when you received it INCOME TAX ASSESSMENT ACT 1997 - SECT 40.195 Apportionment of cost If you pay an amount for 2 or more things that include at least one * depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, you take into account as part of its * cost only that part of what you paid that is reasonably attributable to the asset. Example: Ian buys 3 assets (one depreciating asset and 2 other assets) under the one transaction. He pays $30,000 for the 3 assets. $25,000 of that amount is reasonably attributable to the depreciating asset. The first element of the depreciating asset's cost is $25,000. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.200 Exclusion from cost The * cost of a *depreciating asset that is not *plant does not include any amount that was incurred: (a) before 1 July 2001; or (b) under a contract entered into before that day. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.205 Cost of a split depreciating asset If you split a * depreciating asset into separate assets as mentioned in section 40-115, the first element of the cost of each of the separate assets is a reasonable proportion of the sum of these amounts: (a) the * adjustable value of the original asset just before it was split; and (b) the amount you are taken to have paid under section 40-185 for any economic benefit involved in splitting the original asset. Example: Barry owns a spectrum licence that covers 3 areas: Area A, area B and area C. The licence has an adjustable value of $160,000. He sells area A to Chris, and his costs of splitting are $10,000. Barry is taken to have split the licence into 2 assets. On the basis of their relative market values, Barry apportions $170,000 to area A (that he disposed of) and to the licence he still holds for areas B and C. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.210 Cost of merged depreciating assets If a * depreciating asset or assets that you *hold is or are merged into another depreciating asset as mentioned in section 40-125, the first element of the cost of the merged asset is a reasonable proportion of the sum of: (a) the * adjustable value or adjustable values of the original asset or assets just before the merger; and (b) the amount you are taken to have paid under section 40-185 for any economic benefit involved in merging the original asset or assets. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.215 Adjustment: double deduction Each element of the * cost of a * depreciating asset is reduced by any portion of that element of cost that you have deducted or can deduct, or that has been or will be taken into account in working out an amount you can deduct, other than under this Division, Division 41 or Division 328. Note: This section does not apply to notional deductions under section 355-305 or 355-520 (about R&D) because those provisions are about deducting the asset's decline in value, not its cost. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.220 Cost reduced by amounts not of a capital nature The * cost of a *depreciating asset is reduced by any portion of it that consists of an amount that is not of a capital nature. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.225 Adjustment: acquiring a car at a discount (1) You must increase the first element of the cost of a * car designed mainly for carrying passengers you acquire at a discount if: (a) it is reasonable to conclude that any portion (the discount portion) of the discount is referable to you or another entity selling another asset for less than its * market value; and (b) you, or another entity, has deducted or can deduct an amount for the other asset for any income year; and (c) the sum of the cost of the car and the discount portion exceeds the * car limit for the *financial year in which you first use the car for any purpose. (2) The first element of the cost of the * car is increased by the discount portion. (3) This section does not apply to a * car that is excluded from the * car limit by subsection 40-230(2). INCOME TAX ASSESSMENT ACT 1997 - SECT 40.230 Adjustment: car limit (1) The first element of the cost of a * car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the * car limit for the *financial year in which you started to * hold it if its cost exceeds that limit. (2) However, the * car limit does not apply to a *car: (a) fitted out for transporting disabled people in wheelchairs for profit; or (b) whose first element of * cost exceeds that limit only because of modifications made to enable an individual with a disability to use it for a * taxable purpose. (3) The car limit for the 2000-01 * financial year is $55,134. The limit is indexed annually. Note: Subdivision 960-M shows you how to index amounts. (4) If you * hold a *car that is also held by one or more other entities, subsection (1) applies to the * cost of the car despite section 40-35. Then section 40-35 applies to the cost of the car as reduced under subsection (1). Guide to Subdivision 40-D INCOME TAX ASSESSMENT ACT 1997 - SECT 40.280 What this Subdivision is about You may have to make an adjustment to your taxable income if you stop holding a depreciating asset. The adjustment is generally based on the difference between the actual value of the asset when you stop holding it and its adjustable value. Table of sections Operative provisions 40-285 Balancing adjustments 40-290 Reduction for non-taxable use 40-292 Adjustments--assets used for both general tax purposes and R&D activities 40-293 Adjustments--partnership assets used for both general tax purposes and R&D activities 40-295 Meaning of balancing adjustment event 40-300 Meaning of termination value 40-305 Amount you are taken to have received under a balancing adjustment event 40-310 Apportionment of termination value 40-320 Car to which section 40-225 applies 40-325 Adjustment: car limit 40-335 Deduction for in-house software where you will never use it 40-340 Roll-over relief 40-345 What the roll-over relief is 40-350 Additional consequences 40-360 Notice to allow transferee to work out how this Division applies 40-365 Involuntary disposals 40-370 Balancing adjustments where there has been use of different car expense methods Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.285 Balancing adjustments (1) An amount is included in your assessable income if: (a) a * balancing adjustment event occurs for a *depreciating asset you * held and: (i) whose decline in value you worked out under Subdivision 40-B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset's * termination value is more than its * adjustable value just before the event occurred. The amount included is the difference between those amounts, and it is included for the income year in which the balancing adjustment event occurred. Note 1: The most common balancing adjustment event is where you sell the depreciating asset. Note 2: There is a different calculation if you had used different car expense methods for a car: see section 40-370. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47. (2) You can deduct an amount if: (a) a * balancing adjustment event occurs for a *depreciating asset you * held and: (i) whose decline in value you worked out under Subdivision 40-B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset's * termination value is less than its * adjustable value just before the event occurred. The amount you can deduct is the difference between those amounts, and you can deduct it for the income year in which the balancing adjustment event occurred. Note 1: There is a different calculation if you had used different car expense methods for a car: see section 40-370. Note 2: The timing of a deduction allowed under this subsection is determined under Subdivision 170-D where that Subdivision applies to the balancing adjustment event. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47. (3) The * adjustable value of a *depreciating asset you * hold after this section applies to it is then zero. (4) However, subsection (3) does not apply to a * depreciating asset for which you have a * cost under item 3 or 4 of the table in subsection 40-180(2). Instead, the asset's * opening adjustable value for the income year (the later year) after the one in which the * balancing adjustment event occurred is that cost plus any amounts included in the second element of that cost after the event occurred and before the start of the later year. Note: Those items deal with a case where a balancing adjustment event happens because you still hold an asset you expected not to use. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.290 Reduction for non-taxable use (1) You must reduce the amount (the balancing adjustment amount) included in your assessable income, or the amount you can deduct, under section 40-285 for a * depreciating asset if your deductions for the asset have been reduced under section 40-25. (2) The reduction is: where: "sum of reductions" is the sum of: (a) the reductions in your deductions for the asset under section 40-25; and (b) if there has been roll-over relief for the asset under section 40-340--the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40-25; and (c) if you * hold the asset as the *legal personal representative of an individual--the reductions in deductions for the asset for the individual under section 40-25. "total decline" is the sum of: (a) the decline in value of the * depreciating asset since you started to * hold it; and (b) if there has been roll-over relief for the asset under section 40-340--the decline in value of the asset for the transferor or an earlier successive transferor; and (c) if you * hold the asset as the *legal personal representative of an individual--the decline in value of the asset for the individual. (3) You must further reduce the amount included in your assessable income, or the amount you can deduct, under section 40-285 for a * depreciating asset (the current asset) if: (a) the asset's * cost (for you) was worked out under section 40-205 (Cost of a split depreciating asset) or 40-210 (Cost of merged depreciating assets); and (b) you used the depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it * installed ready for use, for a purpose other than a *taxable purpose. (4) The further reduction is such amount as is reasonable having regard to the extent of the use referred to in paragraph (3)(b). Exception: mining, quarrying or prospecting information (5) This section does not apply to * mining, quarrying or prospecting information. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.292 Adjustments--assets used for both general tax purposes and R&D activities (1) This section applies if: (a) a * balancing adjustment event happens in an income year (the event year) for an asset you * held and for which: (i) you can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or (ii) you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and (b) you are entitled under section 355-100 to * tax offsets for one or more income years for deductions (the R&D deductions) under section 355-305 for the asset. Note: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-292 of the Income Tax (Transitional Provisions) Act 1997). Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose (2) In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a * taxable purpose includes using it for the purpose of conducting the * R&D activities to which the R&D deductions relate. Increase in amounts deductible under section 40-285 (3) If you are entitled under section 355-100 to a * tax offset for the event year in respect of deductions under Division 355 totalling at least $20,000, any amount (the section 40-285 amount) you can deduct for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by: (a) if your * aggregated turnover for the event year is less than $20 million--1 /2 of the amount worked out under subsection (5) of this section; and (b) otherwise--1 /3 of the amount worked out under subsection (5) of this section. Increase in amounts assessable under section 40-285 (4) Any amount (the section 40-285 amount) that is included in your assessable income for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by 1 /3 of the amount worked out under subsection (5) of this section. Component of any increase in amounts deductible or assessable (5) The amount is worked out as follows: where: adjusted section 40-285 amount means: (a) if the section 40-285 amount is a deduction--the amount of the deduction; or (b) if the section 40-285 amount is an amount included in your assessable income--so much of the section 40-285 amount as does not exceed the total decline in value. "total decline in value" means the * cost of the asset less its *adjustable value. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.293 Adjustments--partnership assets used for both general tax purposes and R&D activities (1) This section applies to an * R&D partnership if: (a) a * balancing adjustment event happens in an income year (the event year) for a * depreciating asset * held by the R&D partnership and for which: (i) the R&D partnership can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or (ii) the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and (b) one or more partners of the R&D partnership are entitled under section 355-100 to * tax offsets for one or more income years for deductions (the R&D deductions) under section 355-520 for the asset. Note: This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-293 of the Income Tax (Transitional Provisions) Act 1997). Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose (2) In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a * taxable purpose includes using it for the purpose of conducting the * R&D activities to which the R&D deductions relate. Increase in amounts deductible or assessable under section 40-285 (3) Any amount (the section 40-285 amount): (a) that the * R&D partnership can deduct for the asset under section 40-285 (after applying subsection (2) of this section) for the event year; or (b) that is included in the R&D partnership's assessable income for the asset under section 40-285 (after applying subsection (2) of this section) for the event year; is increased by 1 /3 of the following amount: where: adjusted section 40-285 amount means: (a) if the section 40-285 amount is a deduction--the amount of the deduction; or (b) if the section 40-285 amount is an amount included in the * R&D partnership's assessable income--so much of the section 40-285 amount as does not exceed the total decline in value. "total decline in value" means the * cost of the asset less its *adjustable value. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.295 Meaning of balancing adjustment event (1) A balancing adjustment event occurs for a * depreciating asset if: (a) you stop * holding the asset; or (b) you stop using it, or having it * installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or (c) you have not used it and: (i) if you have had it installed ready for use--you stop having it so installed; and (ii) you decide never to use it. Note: A balancing adjustment event occurs under paragraph 40-295(1)(a) when you start holding a depreciating asset as trading stock. (2) A balancing adjustment event occurs for a * depreciating asset if: (a) for any reason, a change occurs in the * holding of, or in the interests of entities in, the asset; and (b) the entity or one of the entities that had an interest in the asset before the change has an interest in it after the change; and (c) the asset was a partnership asset before the change or becomes one as a result of the change. (3) However, a balancing adjustment event does not occur for a * depreciating asset merely because you split it into 2 or more depreciating assets or you merge it with one or more other depreciating assets. Note: A balancing adjustment event will occur if you stop holding part of a depreciating asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.300 Meaning of termination value (1) The termination value of a * depreciating asset is worked out as at the time when the * balancing adjustment event occurs. It is: (a) if an item in the table in subsection (2) applies--the amount specified in that item; or (b) otherwise--the amount you are taken to have received under section 40-305 for the asset. Note: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) If more than one item applies, use the value under the last applicable item. Termination value table Item For this balancing adjustment event: The termination value is: 1 You stop using a * depreciating asset, or having it *installed ready for use, for any purpose and you expect never to use it again even though you still * hold it The * market value of the asset when you stopped using it or having it * installed ready for use 2 You decide never to use a * depreciating asset that you have not used even though you still * hold it The * market value of the asset when you make the decision 3 You stop using * in-house software for any purpose and you expect never to use it again even though you still * hold it Zero 4 You decide never to use * in-house software that you have not used even though you still * hold it Zero 5 One or more partners stop holding a * depreciating asset when it becomes a partnership asset or a * balancing adjustment event referred to in subsection 40-295(2) occurs The * market value of the asset when the partnership started to * hold it or when the balancing adjustment event occurred 6 You stop * holding a *depreciating asset under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this item, the * termination value would be less than its * market value The market value of the asset just before you stopped holding it 7 You stop * holding a *depreciating asset under an *arrangement that was private or domestic in nature to you (for example, a gift) The * market value of the asset just before you stopped *holding it 8 A * depreciating asset is lost or destroyed The amount or value received or receivable under an insurance policy or otherwise for the loss or destruction 9 You stop * holding a *depreciating asset because you die and the asset starts being held by the * legal personal representative The asset's * adjustable value on the day you died or, if the asset is allocated to a low-value pool, so much of the * closing pool balance for the income year in which you died as is reasonably attributable to the asset 10 You stop * holding a *depreciating asset because it *passes directly to a beneficiary or joint tenant when you die The * market value of the asset on the day you die 11 A * depreciating asset for which the *Finance Minister has determined an amount for you under section 52A of the Airports (Transitional) Act 1996 The amount so determined (3) The termination value of a * depreciating asset does not include an amount that is included in assessable income as * ordinary income under section 6-5 or as * statutory income under section 6-10 (except an amount that is statutory income under this Division). Note: Termination value may be adjusted under Subdivision 27-B so that any GST consequences are accounted for. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.305 Amount you are taken to have received under a balancing adjustment event (1) This Division applies to you as if you had received, under a * balancing adjustment event, the greater of these amounts: (a) the sum of the amounts you have deducted or can deduct, or has been or will be taken into account in working out an amount you can deduct because of the balancing adjustment event and any amount by which the amount so deductible was reduced because of a case described in the table in this subsection; and (b) the sum of the applicable amounts set out in that table: Amount you are taken to have received under a balancing adjustment event Item In this case: The amount is: 1 You receive an amount The amount 2 You terminate all or part of a liability to pay an amount The amount of the liability or part when you terminate it 3 You are granted a right to receive an amount or an amount to which you are entitled is increased The amount of the right or increase when it is granted or increased 4 You receive a * non-cash benefit The * market value of the non-cash benefit when it is received 5 You terminate all or part of a liability to provide a * non-cash benefit The * market value of the non-cash benefit or reduction in the non-cash benefit when the liability or part is terminated 6 You are granted a right to receive a * non-cash benefit or you become entitled to an increased non-cash benefit The * market value of the non-cash benefit, or the increase, when it is granted or increased Note 1: Item 1 includes not only amounts actually received but also amounts taken to have been received. Examples include the price of the notional sale made when a depreciating asset is converted to trading stock under section 70-30, the consideration for an asset held under a hire purchase arrangement under section 240-25 and a lessee's deemed consideration when a luxury car lease ends under subsection 242-90(3). Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) In applying the table in subsection (1) to a right you have to receive an amount or a * non-cash benefit, don't count any part of the right that has already been satisfied. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.310 Apportionment of termination value If you receive an amount for 2 or more things that include a * balancing adjustment event occurring for a *depreciating asset, you take into account as its * termination value only that part of what you received that is reasonably attributable to the asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.320 Car to which section 40-225 applies You must increase the * termination value of a * car the * cost of which was increased under section 40-225 by the discount portion for the car referred to in that section. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.325 Adjustment: car limit The termination value of a * car the *cost of which was worked out by applying section 40-230 (Car limit) is the amount worked out under subsection 40-300(1) multiplied by the fraction: where: "CL is the" * car limit for the *car for the *financial year in which you first used it for any purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.335 Deduction for in-house software where you will never use it (1) You can deduct expenditure you incurred on * in-house software if: (a) you incurred the expenditure with the intention of using the software for a * taxable purpose; and (b) the expenditure relates to a unit of software that you have not used or had * installed ready for use; and (c) the expenditure is not allocated to a software development pool (see Subdivision 40-E); and (d) in the * current year, you have decided that you will never use the software, or have it installed ready for use. (2) The amount that you can deduct in the * current year is: (a) the total of your expenditure on the * in-house software in the current year and any previous income year; less (b) any amount of consideration you * derive in relation to the software or any part of it (but no more than the total in paragraph (a)); but only to the extent that, when you incurred the expenditure, you intended to use the software, or have it * installed ready for use, for a * taxable purpose. Example: Shannon has abandoned a software project that she was working on. She could not deduct expenditure on the project for the current year or any previous income year under any other provision. Shannon can deduct it under this section, to the extent that she intended to use it, or have it installed ready for use, for a taxable purpose. Note: If an amount of the expenditure is recouped, the amount may be included in her assessable income: see Subdivision 20-A. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.340 Roll-over relief Automatic roll-over relief (1) There is roll-over relief if: (a) there is a * balancing adjustment event because an entity (the transferor) disposes of a * depreciating asset in an income year to another entity (the transferee); and (b) the disposal involves a * CGT event; and (c) the conditions in an item in this table are satisfied. CGT roll-overs that qualify transferor for relief Item Type of CGT roll-over Conditions 1 Disposal of asset to wholly-owned company The transferor is able to choose a roll-over under Subdivision 122-A for the * CGT event. 2 Disposal of asset by partnership to wholly-owned company The transferor is a partnership, the property is partnership property and the partners are able to choose a roll-over under Subdivision 122-B for the disposal by the partners of the * CGT assets consisting of their interests in the property. 2A Transfer of a * CGT asset of a trust to a company under a trust restructure The transferor and transferee are able to choose a roll-over under Subdivision 124-N for the * CGT event. 3 Marriage or relationship breakdown There is a roll-over under Subdivision 126-A for the * CGT event. 4 Disposal of asset to another member of the same wholly-owned group The transferor is able to choose a roll-over under Subdivision 126-B for the * CGT event. 5 *Disposal of asset between certain trusts The trustees of the trusts choose to obtain a roll-over under Subdivision 126-G in relation to the disposal. 6 Disposal of asset as part of merger of superannuation funds The transferor chooses a roll-over under Subdivision 310-D in relation to the disposal. Note: Section 40-345 sets out what the relief is. (2) In applying an item in the table in subsection (1), disregard the following so far as they relate to the * depreciating asset you disposed of: (a) an exemption in Division 118 (which contains the general exemptions from CGT); and (b) subsection 122-25(3) (which excludes certain assets from roll-over relief under Subdivision 122-A); and (c) subsection 124-870(5) (which excludes certain assets from roll-over relief under Subdivision 124-N). Choosing roll-over relief (3) There is also roll-over relief if: (a) there is a * balancing adjustment event for a *depreciating asset because of subsection 40-295(2) (about a change in the holding of, or in interests in, the asset); and (b) the entity or entities that had an interest in the asset before the change (also the transferor) and the entity or entities that have an interest in the asset after the change (also the transferee) jointly choose the roll-over relief. Example: The change could be a variation in the constitution of a partnership or in the interests of the partners. Note 1: Section 40-345 sets out what the relief is. Note 2: Subdivision 328-D sets out what the relief is for small business entities that calculate deductions for their depreciating assets under that Subdivision. (4) The choice must: (a) be in writing; and (b) contain enough information about the transferor's holding of the property for the transferee to work out how this Division or Subdivision 328-D applies to the transferee's holding of the * depreciating asset; and (c) be made within 6 months after the end of the transferee's income year in which the * balancing adjustment event occurred, or within a longer period allowed by the Commissioner. (5) If you die before the end of the time allowed for jointly choosing roll-over relief, the trustee of your estate may be a party to the choice. (6) The transferor must keep the choice or a copy of it for 5 years after the * balancing adjustment event occurred. Penalty: 30 penalty units. (7) The transferee must keep the choice or a copy of it until the end of 5 years after the next * balancing adjustment event occurs for the * depreciating asset. Penalty: 30 penalty units. Exception: Subdivision 170-D applies (8) There can be no roll-over relief if Subdivision 170-D (about transactions by a company that is a member of a linked group) applies to the disposal of the * depreciating asset or the change in interests in it. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.345 What the roll-over relief is (1) Section 40-285 does not apply to the * balancing adjustment event for the transferor. (2) The transferee can deduct the decline in value of the * depreciating asset using the same method and * effective life (or * remaining effective life if that method is the * prime cost method) that the transferor was using. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.350 Additional consequences (1) For the purposes of Division 45: (a) if the transferor, or a partnership of which the transferor was a member, leased the * depreciating asset to another entity for most of the time that the transferor or partnership * held the asset, the transferee is taken also to have done so; and (b) if the transferor, or a partnership of which the transferor was a member, leased the asset to another entity for a period on or after 22 February 1999, the transferee is taken also to have done so; and (c) if the main * business of the transferor, or a partnership of which the transferor was a member, was to lease assets, the main business of the transferee is taken also to have been to lease assets. (2) However, subsection (1) does not apply to roll-over relief under subsection 40-340(3) if the sum of the amounts specified in paragraph 45-5(1)(e) or 45-10(1)(f), or subsection 45-5(4) or 45-10(4), is at least equal to the * market value of the *plant or interest concerned. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.360 Notice to allow transferee to work out how this Division applies (1) This section applies if there is roll-over relief because of subsection 40-340(1). (2) The transferor must give the transferee a notice containing enough information about the transferor's * holding of the property for the transferee to work out how this Division applies to the transferee's holding of the * depreciating asset. (3) The transferor must give the notice within 6 months after the end of the transferee's income year in which the * balancing adjustment event occurred, or within a longer period allowed by the Commissioner. (4) The transferee must keep the notice until the end of 5 years after the earlier of these events: (a) the transferee disposes of the property; (b) the property is lost or destroyed. Penalty: 30 penalty units. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.365 Involuntary disposals (1) You may exclude some or all of an amount that has been included in your assessable income for a * depreciating asset (the original asset) as a result of a * balancing adjustment event to the extent that you choose to treat it as an amount to be applied under subsection (5) for one or more replacement assets. (2) You can only make this choice if you stop * holding the asset because: (a) the original asset is lost or destroyed; or (b) the original asset is compulsorily acquired by an * Australian government agency; or (c) the original asset is acquired by an entity (other than an Australian government agency or a * foreign government agency) under a power of compulsory acquisition conferred by a law covered under subsection (2A); or (d) you dispose of the original asset to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) the disposal takes place after a notice was served on you by or on behalf of the entity; (ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement; (iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity; (iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (2A); or (e) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) a mining lease was compulsorily granted over the land; (ii) the lease significantly affected your use of the land; (iii) the lease was in force just before the disposal; (iv) the entity to which you dispose of the land was the lessee under the lease; or (f) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) a mining lease would have been compulsorily granted over the land if you had not disposed of it; (ii) that lease would have significantly affected your use of the land; (iii) the entity to which you dispose of the land would have been the lessee under the lease. (2A) A law is covered under this subsection if it is: (a) an * Australian law (other than Chapter 6A of the Corporations Act 2001); or (b) a * foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001). (3) You can only make this choice for a replacement asset if you incur the expenditure on the replacement asset, or you start to * hold it: (a) no earlier than one year, or within a further period the Commissioner allows, before the * balancing adjustment event occurred; and (b) no later than one year, or within a further period the Commissioner allows, after the end of the income year in which the balancing adjustment event occurred. (4) You can only make this choice for a replacement asset if: (a) at the end of the income year in which you incurred the expenditure on the asset, or you started to * hold it, you used it, or had it * installed ready for use, wholly for a * taxable purpose; and (b) you can deduct an amount for it. (5) For the purposes of applying this Act to the replacement asset: (a) its * cost is reduced by the amount covered by the choice for the income year in which the asset's * start time occurs; and (b) if the income year is later than the one in which the asset's * start time occurs--the sum of its *opening adjustable value for that later year and any amount included in the second element of the asset's cost for that later year is reduced by the amount covered by the choice. (6) If you are making the choice for 2 or more replacement assets, you apportion the amount covered by the choice between those items in proportion to their * cost. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.370 Balancing adjustments where there has been use of different car expense methods (1) An amount is included in your assessable income or you can deduct an amount under this section instead of section 40-285 if: (a) a * balancing adjustment event occurs for a *car you *held; and (b) you have deducted or can deduct an amount for the decline in value of the car for an income year under this Division; and (c) you chose: (i) the "cents per kilometre" method in Subdivision 28-C; or (ii) the "12% of original value" method in Subdivision 28-D; for deducting your car expenses for the car for one or more other income years. Note 1: This means if you have only used the "log book" method or the "one-third of actual expenses" method since you began using the car, you calculate the assessable amount or deductible amount under section 40-285. Note 2: Also, if you have only used the "cents per kilometre" method or the "12% of original value" method since you began using the car, no amount is assessable or deductible under this section or section 40-285. (2) Work out the amount you include in your assessable income or the amount you can deduct in this way: Method statement Step 1. Subtract the * car's *adjustable value just before the * balancing adjustment event occurred from the car's * termination value. Step 2. Reduce the step 1 amount by the part of the * car's decline in value that is attributable to your using the car, or having it * installed ready for use, for purposes other than * taxable purposes. You do this by applying the formula in subsection 40-290(2). Step 3. Multiply the step 2 amount by the total number of days for which you deducted the decline in value of the * car under this Division. Step 4. Divide the step 3 amount by the total number of days you * held the *car. Step 5. The step 4 amount is a deduction if it is negative or it is included in your assessable income if it is positive. (3) In working out the * adjustable value for the income years for which you chose the "cents per kilometre method" or the "12% of original value" method, you are to assume the decline in value was calculated under this Division on the same basis as those income years when those methods did not apply. (4) In working out the reduction in step 2 for the income years for which you chose the "cents per kilometre method" or the "12% of original value" method, you must assume that: (a) you had not chosen either of those methods for the * car; and (b) Division 28 (car expenses) had not applied to the car; and (c) you used the car for * taxable purposes: (i) to the extent of 20% if you used the "cents per kilometre" method; or (ii) to the extent of one-third if you used the "12% of original value" method. Guide to Subdivision 40-E INCOME TAX ASSESSMENT ACT 1997 - SECT 40.420 What this Subdivision is about You may choose to work out the decline in value of low-cost assets (assets costing less than $1,000) and certain other depreciating assets through a low-value pool. You may also choose to deduct amounts for expenditure you incur on in-house software through a software development pool. Table of sections Operative provisions 40-425 Allocating assets to a low-value pool 40-430 Rules for assets in low-value pools 40-435 Private or exempt use of assets 40-440 How you work out the decline in value of assets in low-value pools 40-445 Balancing adjustment events 40-450 Software development pools 40-455 How to work out your deduction 40-460 Your assessable income includes consideration for pooled software Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.425 Allocating assets to a low-value pool (1) You may choose to allocate a * low cost asset you * hold to a low-value pool for the income year in which you start to use it, or have it * installed ready for use, for a * taxable purpose. (2) A low-cost asset is a * depreciating asset (except a * horticultural plant) whose * cost as at the end of the income year in which you start to use it, or have it * installed ready for use, for a * taxable purpose is less than $1,000. (3) You may also choose to allocate a * low-value asset to a low-value pool. (4) You cannot allocate a * depreciating asset to a low-value pool if: (a) its * cost does not exceed $300; and (b) you use the asset predominantly for the * purpose of producing assessable income that is not income from carrying on a * business; and (c) the asset is not part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and (d) the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300. (5) A low-value asset is a * depreciating asset, except a * horticultural plant, you * hold: (a) if you have deducted or can deduct amounts for it under this Division for a previous income year--for which you used the * diminishing value method; and (b) that has an * opening adjustable value for the current year of less than $1,000 (worked out using the diminishing value method); and (c) that is not a * low-cost asset. (6) A * depreciating asset: (a) to which Division 58 (about assets previously owned by an exempt entity) applied for an entity sale situation; and (b) for which you used the * diminishing value method; and (c) whose * adjustable value as at the end of the income year before the * current year is less than $1,000; is also a low-value asset. Exception: small business entities (7) You cannot allocate a * depreciating asset to a low-value pool if you deduct amounts for it under Subdivision 328-D (about capital allowances for small business entities). Exception: R&D (8) You cannot allocate a * depreciating asset to a low-value pool if you are entitled under section 355-100 to a * tax offset for a deduction under section 355-305 for the asset for an income year starting before, or at the same time as, the allocation has effect. Note: A similar rule applies if you deducted or could have deducted amounts under former 73BA of the Income Tax Assessment Act 1936 (see section 40-430 of the Income Tax (Transitional Provisions) Act 1997). INCOME TAX ASSESSMENT ACT 1997 - SECT 40.430 Rules for assets in low-value pools (1) Once you have made a choice to allocate a * low-cost asset to a low-value pool for an income year, you must allocate all low-cost assets you start to * hold in that income year or a later one to the pool. Note 1: This rule does not apply to low-value assets. Note 2: If you are a small business entity for the income year and you calculate your deductions for your depreciating assets under Subdivision 328-D, you must deduct amounts for your depreciating assets under that Subdivision unless deductions for particular assets are specifically excluded by that Subdivision. (2) Once you allocate any * depreciating asset to a low-value pool, it must remain in the pool. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.435 Private or exempt use of assets When you allocate a * depreciating asset to a low-value pool, you must make a reasonable estimate of the percentage (the taxable use percentage) of your use of the asset (including any past use) that will be for a * taxable purpose over: (a) for a * low-cost asset--its *effective life; or (b) for a * low-value asset--any period of its effective life that is yet to elapse at the start of the income year for which you allocate it to the pool. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.440 How you work out the decline in value of assets in low-value pools (1) You work out the decline in value of * depreciating assets in a low-value pool for an income year in this way: Step 1. Work out the amount obtained by taking 183 /4% of the taxable use percentage of the *cost of each *low-cost asset you allocated to the pool for that year. Add those amounts. Step 2. Add to the step 1 amount 183 /4% of the taxable use percentage of any amounts included in the second element of the * cost for that year of: (a) assets allocated to the pool for an earlier income year; and (b) * low-value assets allocated to the pool for the * current year. Step 3. Add to the step 2 amount 371 /2% of the sum of: (a) the * closing pool balance for the previous income year; and (b) the taxable use percentage of the * opening adjustable values of *low-value assets, at the start of the income year, that you allocated to the pool for that year. Step 4. The result is the decline in value of the * depreciating assets in the pool. (2) The closing pool balance of a low-value pool for an income year is the sum of: (a) the * closing pool balance of the pool for the previous income year; and (b) the taxable use percentage of the * costs of *low-cost assets you allocated to the pool for that year; and (c) the taxable use percentage of the * opening adjustable values of any * low-value assets you allocated to the pool for that year as at the start of that year; and (d) the taxable use percentage of any amounts included in the second element of the cost for the income year of: (i) assets allocated to the pool for an earlier income year; and (ii) low-value assets allocated to the pool for the * current year; less the decline in value of the * depreciating assets in the pool worked out under subsection (1). Note: The closing pool balance may be reduced under section 40-445 if a balancing adjustment event happens. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.445 Balancing adjustment events (1) If a * balancing adjustment event happens to a *depreciating asset in a low-value pool in an income year, the * closing pool balance for that year is reduced (but not below zero) by the taxable use percentage of the asset's * termination value. (2) If the sum of the * termination values, or the part of it, applicable under subsection (1) exceeds the * closing pool balance of the pool for that year, the excess is included in your assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.450 Software development pools (1) You may choose to allocate amounts of expenditure you incur on * in-house software in an income year to a software development pool if it is expenditure on developing, or having another entity develop, computer software. Note: You cannot allocate expenditure on in-house software to a software development pool if it is expenditure on acquiring computer software or a right to use computer software. (2) Once you choose to create a software development pool for an income year, any amounts of the kind referred to in subsection (1) you incur after the pool is created (whether in that income year or a later one) must be allocated to a software development pool. (3) However, an amount of expenditure on * in-house software can only be allocated to a software development pool if you intend to use the software solely for a * taxable purpose. (4) You must create a separate software development pool for each income year for which you incur amounts of the kind referred to in subsection (1). INCOME TAX ASSESSMENT ACT 1997 - SECT 40.455 How to work out your deduction For all the expenditure on * in-house software in a software development pool that was incurred in a particular income year (Year 1), you get deductions in successive income years as follows: Deductions allowed for software development pool Income year Amount of expenditure you can deduct for that year Year 1 Nil Year 2 40% Year 3 40% Year 4 20% INCOME TAX ASSESSMENT ACT 1997 - SECT 40.460 Your assessable income includes consideration for pooled software (1) If expenditure on * in-house software is (or was) in your software development pool, your assessable income includes any amount you * derive as consideration in relation to the software. (2) However, subsection (1) does not apply if subsection 40-340(3) (roll-over relief) applies to the change. Guide to Subdivision 40-F INCOME TAX ASSESSMENT ACT 1997 - SECT 40.510 What this Subdivision is about You can deduct amounts for capital expenditure on depreciating assets that are water facilities or horticultural plants. The amount you can deduct is equal to the asset's decline in value during an income year (as measured under this Subdivision). Table of sections Operative provisions 40-515 Water facilities and horticultural plants 40-520 Meaning of water facility and horticultural plant 40-525 Conditions 40-530 When a water facility or horticultural plant starts to decline in value 40-535 Meaning of horticulture and commercial horticulture 40-540 How you work out the decline in value for water facilities 40-545 How you work out the decline in value for horticultural plants 40-555 Amounts you cannot deduct 40-560 Non-arm's length transactions 40-565 Extra deduction for destruction of a horticultural plant 40-570 How this Subdivision applies to partners and partnerships 40-575 Getting tax information if you acquire a horticultural plant Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.515 Water facilities and horticultural plants (1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Subdivision) of a * depreciating asset that is one of these: (a) a * water facility; (b) a * horticultural plant. Note 1: Sections 40-540 and 40-545 show you how to work out the decline. Note 2: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35. Conditions (2) However, the applicable condition in section 40-525 must be satisfied for the * depreciating asset. Limit on deduction (3) You cannot deduct more in total than the amount of capital expenditure incurred on the * depreciating asset. Reduction of deduction: water facilities (4) You must reduce your deduction for a * water facility for an income year by the part of the facility's decline in value that is attributable to the period (if any) in the income year when it was: (a) not wholly used in carrying on a * primary production business on land in Australia; or (b) not wholly used for a * taxable purpose. (5) Paragraph (4)(a) does not apply to a * water facility if the expenditure incurred on the construction, manufacture, installation or acquisition of the water facility was incurred by an * irrigation water provider. Meaning of irrigation water provider (6) An irrigation water provider is an entity whose * business is primarily and principally the supply (otherwise than by using a * motor vehicle) of water to entities for use in * primary production businesses on land in Australia. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.520 Meaning of water facility and horticultural plant (1) A water facility is: (a) * plant or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to plant or a structural improvement, that is primarily and principally for the purpose of conserving or conveying water; or (b) a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to conserving or conveying water. Example: Examples of a water facility include a dam, tank, tank stand, bore, well, irrigation channel, pipe, pump, water tower and windmill. Examples of things reasonably incidental to conserving or conveying water include a culvert, a fence to prevent livestock entering an irrigation channel and a bridge over an irrigation channel. (2) A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.525 Conditions Water facilities (1) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the * water facility must have been incurred: (a) primarily and principally for the purpose of conserving or conveying water for use in a * primary production business that you conduct on land in Australia; or (b) for expenditure incurred by an * irrigation water provider--primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia, being entities supplied with water by the irrigation water provider. Note: If Division 250 applies to you and an asset that is a water facility: (a) if section 250-150 applies--the condition in this subsection is taken to be satisfied for the facility to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--the condition in this subsection is taken not to be satisfied for the facility. Horticultural plants (2) One of the conditions in this table must be satisfied: Conditions relating to horticultural plants Item Condition 1 You own the * horticultural plant and any holder of a lease, lesser interest or licence relating to the land does not carry on a * business of *horticulture on the land 2 The * horticultural plant is attached to land you hold under a lease, or a * quasi-ownership right granted by an * exempt Australian government agency or an *exempt foreign government agency, and: (a) the lease or quasi-ownership right enables you to carry on a * business of * horticulture on the land; and (b) any holder of a lesser interest or licence relating to the land does not carry on a * business of *horticulture on the land. 3 You: (a) hold a licence relating to the land to which the * horticultural plant is attached; and (b) carry on a * business of *horticulture on the land as a result of holding the licence. Note: If Division 250 applies to you and an asset that is a horticultural plant: (a) if section 250-150 applies--a condition in this subsection is taken to be satisfied for the plant to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--the conditions in this subsection are taken not to be satisfied for the horticultural plant. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.530 When a water facility or horticultural plant starts to decline in value A * water facility or horticultural plant starts to decline in value in the income year worked out using this table: Start of decline in value Item This asset: Starts to decline in value in: 1 A * water facility the income year in which you first incur expenditure on the facility 2 A * horticultural plant (a) if you are the first entity to satisfy a condition in subsection 40-525(2) for the plant--the income year in which the first commercial season starts; or (b) if not--the later of the income year in which you first satisfied that condition and the income year in which the first commercial season starts INCOME TAX ASSESSMENT ACT 1997 - SECT 40.535 Meaning of horticulture and commercial horticulture (1) Horticulture includes: (a) propagation and cultivation of a * horticultural plant in any environment (whether natural or artificial); and (b) propagation and cultivation of seeds, bulbs, spores and similar things; and (c) propagation and cultivation of fungi. (2) Use for commercial horticulture means use for the * purpose of producing assessable income in a * business of *horticulture. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.540 How you work out the decline in value for water facilities You work out the decline in value of a * water facility for an income year in this way for the income year in which you incurred the expenditure and the 2 following years: where: "expenditure" is the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the * water facility. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.545 How you work out the decline in value for horticultural plants (1) The decline in value of a * horticultural plant for the income year in which it starts to decline in value is all of the capital expenditure attributable to the establishment of the plant if its * effective life is less than 3 years. (2) You work out the decline in value for an income year of a * horticultural plant whose * effective life is 3 years or more in this way: where: "establishment expenditure" is the amount of capital expenditure incurred that is attributable to the establishment of the * horticultural plant. "write-off days in income year" is the number of days in the income year on which you satisfied a condition in subsection 40-525(2) for the plant and either used it for * commercial horticulture or held it ready for that use. "write-off rate" is the rate shown in this table for the * horticultural plant according to its *effective life. Write-off rate for horticultural plant Item Effective life of: The write-off rate is: 1 3 to fewer than 5 years 40% 2 5 to fewer than 62 /3 years 27% 3 62 /3 to fewer than 10 years 20% 4 10 to fewer than 13 years 17% 5 13 to fewer than 30 years 13% 6 30 years or more 7% Limit on write-off days (3) Disregard your use of the * horticultural plant on a day outside the period that: (a) starts when the plant can first be used for * commercial horticulture; and (b) extends for the time shown in this table (depending on the plant's * effective life). Period after which you cannot count use of horticultural plant Item Effective life: Time limit: 1 3 to fewer than 5 years 2 years and 183 days 2 5 to fewer than 62 /3 years 3 years and 257 days 3 62 /3 to fewer than 10 years 5 years 4 10 to fewer than 13 years 5 years and 323 days 5 13 to fewer than 30 years 7 years and 253 days 6 30 years or more 14 years and 105 days INCOME TAX ASSESSMENT ACT 1997 - SECT 40.555 Amounts you cannot deduct Water facilities (1) You cannot deduct an amount for any income year for capital expenditure on the acquisition of a * water facility if any person has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on: (a) the construction or manufacture of the facility; or (b) a previous acquisition of the facility. Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a water facility are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53. Horticultural plants (3) In working out your deduction under this Subdivision for a * horticultural plant, disregard expenditure incurred: (a) in draining swamp or low-lying land; or (b) in clearing land. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.560 Non-arm's length transactions If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this section, the amount of the expenditure would be more than the * market value of what it was for; the amount of expenditure you take into account under this Subdivision is that market value. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.565 Extra deduction for destruction of a horticultural plant (1) You can deduct the amount worked out under subsection (2) for a * horticultural plant for an income year if its *effective life is 3 years or more and it is destroyed during the income year while you own it and use it for * commercial horticulture. (2) Work out your deduction as follows: Method statement Step 1. Work out the total of the amounts you could have deducted under this Subdivision for the * horticultural plant for the period: (a) starting when the plant could first be used for * commercial horticulture; and (b) ending when it was destroyed; assuming that, during that period, you satisfied a condition in section 40-525 for the plant and used it for commercial horticulture. Step 2. Subtract from the capital expenditure that is attributable to the establishment of the * horticultural plant: (a) the result from step 1; and (b) any amount you received (under an insurance policy or otherwise) for the destruction. The remaining amount (if any) is your deduction under subsection (1). (3) This deduction is in addition to any deduction for the income year under section 40-545. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.570 How this Subdivision applies to partners and partnerships (1) This section applies to allocate expenditure to you for the purposes of this Subdivision if you were a partner in a partnership when it incurred capital expenditure during an income year. (2) For the purposes of this Subdivision, you are taken to have incurred during that income year: (a) the amount of the expenditure that the partners agreed you should bear; or (b) if there was no such agreement--the proportion of the expenditure equal to the proportion of your individual interest in the net income or partnership loss of the partnership for that income year. (3) Disregard this Subdivision when working out the net income or partnership loss of the partnership under section 90 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.575 Getting tax information if you acquire a horticultural plant (1) If you begin to satisfy a condition in section 40-525 for a * horticultural plant, you may give the last entity (if any) that satisfied such a condition for the plant a written notice requiring the entity to give you any or all of the following information: (a) the amount of establishment expenditure for the plant; (b) if the entity used the plant's * effective life to work out the decline in value of the plant--its effective life and the day on which it could first be used for * commercial horticulture. (2) The notice must: (a) be given within 60 days of your beginning to satisfy that condition; and (b) specify a period of at least 60 days within which the information must be given; and (c) set out the effect of subsection (3). Note: Subsections (4) and (5) explain how this subsection operates if the last owner is a partnership. Requirement to comply with notice (3) The entity to whom the notice is given must not intentionally refuse or fail to comply with the notice. Penalty: 10 penalty units. Giving the notice to a partnership (4) If the entity to whom the notice is given is a partnership: (a) you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and (b) the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them. (5) A partner must not intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it. Penalty: 10 penalty units. Limits on giving a notice (6) Only one notice can be given in relation to the same * horticultural plant. Guide to Subdivision 40-G INCOME TAX ASSESSMENT ACT 1997 - SECT 40.625 What this Subdivision is about You can deduct amounts for capital expenditure you incur: • on landcare operations; or • on electricity connections or telephone lines. Table of sections Operative provisions 40-630 Landcare operations 40-635 Meaning of landcare operation 40-640 Meaning of approved management plan 40-645 Electricity and telephone lines 40-650 Amounts you cannot deduct under this Subdivision 40-655 Meaning of connecting power to land or upgrading the connection and metering point 40-660 Non-arm's length transactions 40-665 How this Subdivision applies to partners and partnerships 40-670 Approval of persons as farm consultants 40-675 Review of decisions relating to approvals Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.630 Landcare operations (1) You can deduct capital expenditure you incur at a time in an income year on a * landcare operation for: (a) land in Australia you use at the time for carrying on a * primary production business; or (b) rural land in Australia you use at the time for carrying on a * business for a *taxable purpose from the use of that land (except a business of * mining operations). Note: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies--you are taken to be using the land for the purpose of carrying on a primary production business, or a business for the purpose of producing assessable income from the use of rural land (except a business of mining operations), to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you are taken not to be using the land for such a purpose. (1A) A * rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a * landcare operation for: (a) land in Australia that other entities use at the time for carrying on * primary production businesses; or (b) rural land in Australia that other entities use at the time for carrying on * businesses for a *taxable purpose from the use of that land (except a business of * mining operations); being entities supplied with water by the rural land irrigation water provider. (1B) A rural land irrigation water provider is: (a) an * irrigation water provider; or (b) an entity whose * business is primarily and principally the supply (otherwise than by using a * motor vehicle) of water to entities for use in carrying on * businesses (except businesses of *mining operations) using rural land in Australia. Exception: plant (2) However, you cannot deduct an amount under this Subdivision for capital expenditure on * plant, except: (a) a fence erected for a purpose described in paragraph 40-635(1)(a) or (b); or (b) a dam or structural improvement (except a fence) covered by paragraph (1)(c), (d), (e) or (f) of the definition of plant in section 45-40. (2A) In applying paragraph (2)(b) to capital expenditure incurred by a * rural land irrigation water provider on a dam or structural improvement, the requirement in paragraph 45-40(1)(c) that the land on which the dam or structural improvement is situated be used for agricultural or pastoral operations is to be disregarded. Exception: deduction available under Subdivision 40-F (2B) A * rural land irrigation water provider cannot deduct an amount under this Subdivision for capital expenditure if the entity can deduct an amount for that expenditure under Subdivision 40-F. Exception: deduction available under Subdivision 40-J (2C) You cannot deduct an amount under this Subdivision for capital expenditure if any entity can deduct an amount for that expenditure for any income year under Subdivision 40-J. Reduction of deduction (3) You must reduce your deduction by a reasonable amount to reflect your use of the land in the income year after the time when you incurred the expenditure for a purpose other than the purpose of carrying on: (a) a * primary production business; or (b) a * business for the *purpose of producing assessable income from the use of rural land (except a business of * mining operations). (4) Subsection (3) does not apply to expenditure incurred by a * rural land irrigation water provider. Instead, a rural land irrigation water provider must reduce its deduction in relation to particular land by a reasonable amount to reflect an entity's use of the land in the income year after the rural land irrigation water provider incurred the expenditure for a purpose other than a * taxable purpose. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.635 Meaning of landcare operation (1) Landcare operation for land means: (a) erecting a fence to separate different land classes on the land in accordance with an * approved management plan for the land; or (b) erecting a fence on the land primarily and principally for the purpose of excluding animals from an area affected by land degradation: (i) to prevent or limit extension or worsening of land degradation in the area; and (ii) to help reclaim the area; or (c) constructing a levee or a similar improvement on the land; or (d) constructing drainage works on the land primarily and principally for the purpose of controlling salinity or assisting in drainage control; or (e) an operation primarily and principally for the purpose of: (i) eradicating or exterminating from the land animals that are pests; or (ii) eradicating, exterminating or destroying plant growth detrimental to the land; or (iii) preventing or fighting land degradation (except by erecting fences on the land); or (f) a repair of a capital nature, or an alteration, addition or extension, to an asset described in paragraph (a), (b), (c) or (d) or an extension of an operation described in paragraph (e); or (g) constructing a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to an asset described in paragraph (c) or (d). Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset are not the same asset for the purposes of section 40-50 and this Subdivision: see section 40-53. (2) Paragraph (1)(d) does not apply to an operation draining swamp or low-lying land. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.640 Meaning of approved management plan An approved management plan for * land is a plan that: (a) shows the different classes within the land and the location of any fencing needed to separate any of the land classes to prevent land degradation; and (b) describes the kind of fencing and how it will prevent land degradation; and (c) has been prepared by, or approved in writing as a suitable plan for the land by: (i) an officer of an * Australian government agency responsible for land conservation who has authority to do so; or (ii) an individual who was at the time approved as a farm consultant under this Subdivision. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.645 Electricity and telephone lines (1) You can deduct amounts for capital expenditure you incur on * connecting power to land or upgrading the connection if, when you incur the expenditure: (a) you have an interest in the land or are a share-farmer carrying on a * business on the land; and (b) you or another entity intends to use some or all of the electricity to be supplied as a result of the expenditure in carrying on a business on the land for a * taxable purpose at a time when you have an interest in the land or are a share-farmer carrying on a business on the land. (2) You can also deduct amounts for capital expenditure you incur on a telephone line on or extending to land if, when you incurred the expenditure: (a) a * primary production business was carried on the land; and (b) you had an interest in the land or you were a share-farmer carrying on a primary production business on the land. (3) The amount you can deduct is 10% of the expenditure: (a) for the income year in which you incur it; and (b) for each of the next 9 income years. Note 1: Various provisions may reduce the amount you can deduct or stop you deducting. For example, see: * Division 26 (limiting deductions generally); and * section 40-650 (specifying expenditure you cannot deduct under this Subdivision); and * Division 245 (which may affect your entitlement to a deduction if your debts are forgiven). Note 2: If you recoup an amount of the expenditure, the amount will be included in your assessable income. See Subdivision 20-A. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.650 Amounts you cannot deduct under this Subdivision (1) You cannot deduct amounts for capital expenditure you incur on * connecting power to land or upgrading the connection if, during the 12 months after electricity is first supplied to the land as a result of the expenditure, no electricity supplied as a result of the expenditure is used in carrying on a * business on the land for a *taxable purpose. (2) If you deducted an amount for any income year under this Subdivision for the expenditure, your assessment for that income year may be amended under section 170 of the Income Tax Assessment Act 1936 to disallow the deduction. (3) You cannot deduct an amount for capital expenditure you incur on * connecting power to land or upgrading the connection for: (a) expenditure in providing water, light or power for use on, access to or communication with the site of * mining operations; or (b) a contribution to the cost of providing water, light or power for those operations. (4) You cannot deduct an amount for any income year for your capital expenditure on a part of a telephone line if: (a) any entity has deducted, or can deduct, an amount for any income year for the cost of that part under a provision of this Act (except this Subdivision); or (b) the cost of that part has been, or must be, taken into account in working out: (i) the amount of any entity's deduction (including a deduction for a * depreciating asset) for any income year under a provision of this Act (except this Subdivision); or (ii) the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936. (5) However, you can deduct an amount under this Subdivision for your expenditure on a part of a telephone line even if: (a) an entity that worked on installing that part has deducted, or can deduct, an amount relating to that part for any income year under this Act (except this Subdivision); or (b) the cost of that part has been, or must be, taken into account: (i) in working out the amount of such an entity's deduction for any income year under a provision of this Act (except this Subdivision); or (ii) under section 90 of the Income Tax Assessment Act 1936 in working out the net income, or partnership loss, of a partnership that worked on installing that part. (6) Subsection (5) has effect whether the entity did the work itself or through one or more employees or * agents. (7) If you can deduct, or have deducted, an amount for any income year under section 40-645 for your expenditure: (a) an entity cannot deduct an amount for any income year under a provision of this Act (except this Subdivision) for the expenditure; and (b) the expenditure cannot be taken into account to work out the amount of an entity's deduction for any income year under a provision of this Act (except this Subdivision). (8) Subsection (7) also applies in working out the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.655 Meaning of connecting power to land or upgrading the connection and metering point (1) Each of these operations is connecting power to land or upgrading the connection: (a) connecting a mains electricity cable to a * metering point on the land (whether or not the point from which the cable is connected is on the land); (b) providing or installing equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land; (c) providing or installing equipment for use directly in connection with the supply of electricity through a mains electricity cable to a metering point on the land; (d) work to increase the amount of electricity that can be supplied through a mains electricity cable to a metering point on the land; (e) work to modify or replace equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land, if the modification or replacement results from increasing the amount of electricity supplied to the land; (f) work to modify or replace equipment for use directly in connection with the supply of electricity through a mains electricity cable to the land, if the modification or replacement results from increasing the amount of electricity supplied to the land; (g) work carried out as a result of a contribution to the cost of a project consisting of the connection of mains electricity facilities to that land and other land. (2) However, an operation described in subsection (1) done in the course of replacing or relocating mains electricity cable or equipment is connecting power to land or upgrading the connection only if done to increase the amount of electricity that can be supplied to a * metering point on the land. (3) A metering point on land is a point where consumption of electricity supplied to the land through a mains electricity cable is measured. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.660 Non-arm's length transactions If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this section, the amount of the expenditure would be more than the * market value of what it was for; the amount of expenditure you take into account under this Subdivision is that market value. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.665 How this Subdivision applies to partners and partnerships (1) This section applies to allocate expenditure to you for the purposes of this Subdivision if you were a partner in a partnership when it incurred capital expenditure during an income year. (2) For the purposes of this Subdivision, you are taken to have incurred during that income year: (a) the amount of the expenditure that the partners agreed you should bear; or (b) if there was no such agreement--the proportion of the expenditure equal to the proportion of your individual interest in the net income or partnership loss of the partnership for that income year. (3) Disregard this Subdivision when working out the net income or partnership loss of the partnership under section 90 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.670 Approval of persons as farm consultants (1) A person may be approved in writing as a farm consultant by: (a) the * Agriculture Secretary; or (b) an officer of the * Agriculture Department who has been authorised in writing by the Agriculture Secretary to approve persons as farm consultants. Note: This subsection also allows the approval of an individual as a farm consultant to be revoked. See subsection 33(3) of the Acts Interpretation Act 1901. (2) The following matters must be taken into account when deciding whether to approve a person as a farm consultant: (a) the person's qualifications, experience and knowledge relating to * land conservation and farm management; (b) the person's standing in the professional community; (c) any other relevant matters. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.675 Review of decisions relating to approvals A person may apply to the * AAT for review of a decision (as defined in the Administrative Appeals Tribunal Act 1975): (a) to refuse to approve the person as a farm consultant; or (b) to revoke the approval of the person as a farm consultant. Guide to Subdivision 40-H INCOME TAX ASSESSMENT ACT 1997 - SECT 40.725 What this Subdivision is about You get an immediate deduction for certain capital expenditure on: • exploration or prospecting; and • rehabilitation of mining or quarrying sites; and • paying petroleum resource rent tax; and • environmental protection activities. Table of sections Operative provisions 40-730 Deduction for expenditure on exploration or prospecting 40-735 Deduction for expenditure on mining site rehabilitation 40-740 Meaning of ancillary activities and mining building site 40-745 No deduction for certain expenditure 40-750 Deduction for payments of petroleum resource rent tax 40-755 Environmental protection activities 40-760 Limits on deductions from environmental protection activities 40-765 Non-arm's length transactions Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.730 Deduction for expenditure on exploration or prospecting (1) You can deduct expenditure you incur in an income year on * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining operations if, for that expenditure, you satisfy one or more of these paragraphs: (a) you carried on mining operations; (b) it would be reasonable to conclude you proposed to carry on such operations; (c) you carried on a * business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and the expenditure was necessarily incurred in carrying on that business. Note: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies--you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you cannot deduct such expenditure. (2) However, you cannot deduct expenditure under subsection (1) if it is expenditure on: (a) development drilling for * petroleum; or (b) operations in the course of working a mining property, quarrying property or petroleum field. (3) Also, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the * cost of a *depreciating asset. (4) Exploration or prospecting includes: (a) for mining in general, and quarrying: (i) geological mapping, geophysical surveys, systematic search for areas containing * minerals (except *petroleum) or quarry materials, and search by drilling or other means for such minerals or materials within those areas; and (ii) search for ore within, or near, an ore-body or search for quarry materials by drives, shafts, cross-cuts, winzes, rises and drilling; and (b) for petroleum mining: (i) geological, geophysical and geochemical surveys; and (ii) exploration drilling and appraisal drilling; and (c) feasibility studies to evaluate the economic feasibility of mining minerals or quarry materials once they have been discovered; and (d) obtaining * mining, quarrying or prospecting information associated with the search for, and evaluation of, areas containing minerals or quarry materials. (5) Minerals includes * petroleum. (6) Petroleum means: (a) any naturally occurring hydrocarbon or naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or (b) any naturally occurring mixture of: (i) one or more hydrocarbons, whether in a gaseous, liquid or solid state; and (ii) one or more of the following: hydrogen sulphide, nitrogen, helium or carbon dioxide; whether or not that substance has been returned to a natural reservoir. (7) Mining operations means: (a) mining operations on a mining property for extracting * minerals (except *petroleum) from their natural site; or (b) mining operations for the purpose of obtaining petroleum; or (c) quarrying operations on a quarrying property for extracting quarry materials from their natural site; for the * purpose of producing assessable income. (8) Mining, quarrying or prospecting information is geological, geophysical or technical information that: (a) relates to the presence, absence or extent of deposits of * minerals or quarry materials in an area; or (b) is likely to help in determining the presence, absence or extent of such deposits in an area. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.735 Deduction for expenditure on mining site rehabilitation (1) You can deduct for an income year expenditure you incur in that year to the extent it is on * mining site rehabilitation of: (a) a site on which you: (i) carried on * mining operations; or (ii) conducted * exploration or prospecting; or (iii) conducted * ancillary mining activities; or (b) a * mining building site. Note 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A. Note 2: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies--you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you cannot deduct such expenditure. (2) However, a provision of this Act (except Division 8 (which is about deductions)) that expressly prevents or restricts the operation of that Division applies in the same way to this section. (3) However, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the * cost of a *depreciating asset. (4) Mining site rehabilitation is an act of restoring or rehabilitating a site or part of a site to, or to a reasonable approximation of, the condition it was in before * mining operations, * exploration or prospecting or * ancillary mining activities were first started on the site, whether by you or by someone else. (5) Partly restoring or rehabilitating such a site counts as mining site rehabilitation (even if you had no intention of completing the work). (6) For a * mining building site, the time when *ancillary mining activities were first started on the site is the earliest time when the buildings, improvements or * depreciating assets concerned were located on the site. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.740 Meaning of ancillary mining activities and mining building site (1) Any of the following are ancillary mining activities: (a) preparing a site for you to carry on * mining operations; (b) providing water, light or power for, access to, or communications with, a site on which you carry on, or will carry on, mining operations; (c) * minerals treatment of *minerals or minerals treatment of quarry materials, obtained by you in carrying on mining operations; (d) storing (whether before or after minerals treatment) such minerals, petroleum or quarry materials in relation to the operation of a * depreciating asset for use primarily and principally in treating such minerals or quarry materials; (e) liquefying natural gas obtained from mining operations you carry on. (2) A mining building site is a site, or a part of a site, where there are * depreciating assets that are or were necessary for you to carry on * mining operations. However, a mining building site does not include anything covered by the definition of housing and welfare. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.745 No deduction for certain expenditure Expenditure on these things is not deductible under section 40-735: (a) acquiring land or an interest in land or a right, power or privilege to do with land; (b) a bond or security, however described, for performing * mining site rehabilitation; (c) * housing and welfare. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.750 Deduction for payments of petroleum resource rent tax (1) You can deduct a payment of * petroleum resource rent tax, or an * instalment of petroleum resource rent tax, that you make in an income year. Note 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A. Note 2: If Division 250 applies to you and an asset: (a) if section 250-150 applies--you can deduct expenditure you incur in relation to the asset to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you cannot deduct such expenditure. (2) You cannot deduct under subsection (1) a payment that you make under paragraph 99(c) of the Petroleum Resource Rent Tax Assessment Act 1987. (3) These amounts are included in your assessable income for the income year in which they are refunded, credited, paid or applied: (a) an amount the Commissioner pays you in total or partial discharge of a debt of the kind referred to in subsection 47(1) of the Petroleum Resource Rent Tax Assessment Act 1987; or (b) an amount the Commissioner applies under subsection 47(2) of the Petroleum Resource Rent Tax Assessment Act 1987 in total or partial discharge of a liability you have. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.755 Environmental protection activities (1) You can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on * environmental protection activities. Note: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies--you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you cannot deduct such expenditure. (2) Environmental protection activities are any of the following activities that are carried on by or for you: (a) preventing, fighting or remedying: (i) pollution resulting, or likely to result, from * your earning activity; or (ii) pollution of or from the site of your earning activity; or (iii) pollution of or from a site where an entity was carrying on any * business that you have acquired and carry on substantially unchanged as your earning activity; (b) treating, cleaning up, removing or storing: (i) waste resulting, or likely to result, from your earning activity; or (ii) waste that is on or from the site of * your earning activity; or (iii) waste that is on or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity. No other activities are environmental protection activities. (3) Your earning activity is an activity you carried on, carry on, or propose to carry on: (a) for the * purpose of producing assessable income for an income year (except a * net capital gain); or (b) for the purpose of * exploration or prospecting; or (c) for the purpose of * mining site rehabilitation; or (d) for purposes that include one or more of those purposes. (4) If * your earning activity is: (a) leasing a site you own; or (b) granting a * right to use a site you own or control; or (c) a similar activity involving a site; that site is taken to be the site of your earning activity. Note: This means you can deduct your expenditure on environmental protection activities relating to the site, even if the pollution or waste is caused by another entity that uses the site. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.760 Limits on deductions from environmental protection activities Expenditure you cannot deduct (1) You cannot deduct an amount under section 40-755 for an income year for: (a) expenditure for acquiring land; or (b) capital expenditure for constructing a building, structure or structural improvement; or (c) capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement; or (d) a bond or security (however described) for performing * environmental protection activities; or (e) expenditure to the extent that you can deduct an amount for it under a provision of this Act outside this Subdivision. Note: You may be able to deduct expenditure described in paragraph (1)(b) or (c) under Division 43 (which deals with capital works). (2) In particular, you cannot deduct under section 40-755 expenditure to the extent that you incur it on carrying out an activity for environmental impact assessment of your project. (3) However, a provision of this Act (except Division 8 (which is about deductions)) that expressly prevents or restricts the operation of that Division applies in the same way to section 40-755. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.765 Non-arm's length transactions If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this section, the amount of the expenditure would be more than the * market value of what it was for; the amount of expenditure you take into account under this Subdivision is that market value. Guide to Subdivision 40-I INCOME TAX ASSESSMENT ACT 1997 - SECT 40.825 What this Subdivision is about You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amounts over the life of the project using a pool. You can also deduct amounts for certain business related costs. You deduct these amounts over 5 years if the amounts are not otherwise taken into account and are not denied a deduction. Table of sections Operative provisions 40-830 Project pools 40-832 Project pools for post-9 May 2006 projects 40-835 Reduction of deduction 40-840 Meaning of project amount 40-845 Project life 40-855 When you start to deduct amounts for a project pool 40-860 Meaning of mining capital expenditure 40-865 Meaning of transport capital expenditure 40-870 Meaning of transport facility 40-875 Meaning of processed minerals and minerals treatment 40-880 Business related costs 40-885 Non-arm's length transactions Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.830 Project pools (1) You can allocate * project amounts to a project pool. (2) You can deduct amounts for * project amounts that are allocated to the project pool. (3) You calculate your deduction for an income year for a project pool in this way: where: "DV project pool life" is: (a) the * project life of the project; or (b) if its project life has been recalculated--its most recently recalculated project life. "pool value" is: (a) for the first income year that a * project amount is allocated to the pool--the sum of the project amounts allocated to the pool for that year; or (b) for a later income year--the sum of the pool's * closing pool value for the previous income year and any project amounts allocated to the pool for the later year. Note: The calculation is made under subsection 40-832(3) for project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day. (4) If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool's * closing pool value for the previous income year and any *project amounts allocated to the pool for the income year. (5) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (6) Your assessable income for an income year includes other capital amounts that you * derive in that year in relation to a *project amount allocated to your project pool or in relation to something on which the project amount is expended. (7) The closing pool value of a project pool for an income year is: (a) for the first income year that a * project amount is allocated to the pool--the sum of the project amounts allocated to the pool for that year less the amount you could deduct for the pool for that year (apart from section 40-835); or (b) for a later income year--the sum of the pool's * closing pool value for the previous income year and any project amounts allocated to the pool for the later year less the amount you could deduct for the pool for the later year (apart from section 40-835). (8) Your deduction for an income year cannot be more than the amount of the component "pool value" in the formula in subsection (3) for that year. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.832 Project pools for post-9 May 2006 projects (1) You calculate your deduction for an income year for a project pool in this way if the project pool contains only * project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day: where: "DV project pool life" has the same meaning as in subsection 40-830(3). "pool value" has the same meaning as in subsection 40-830(3). (2) If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool's * closing pool value for the previous income year and any * project amounts allocated to the pool for the income year. (3) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (4) Your assessable income for an income year includes other capital amounts that you * derive in that year in relation to a *project amount allocated to your project pool or in relation to something on which the project amount is expended. (5) Your deduction for an income year cannot be more than the amount of the component "pool value" in the formula in subsection (1) for that year. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.835 Reduction of deduction You must reduce your deduction under section 40-830 or 40-832 for an income year by a reasonable amount for the extent (if any) to which the project operates in the year for purposes other than * taxable purposes. Note: If Division 250 applies to you and an asset: (a) if section 250-150 applies--you are taken to be using the asset for taxable purposes to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you are taken not to be using the asset for such purposes. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.840 Meaning of project amount (1) An amount of * mining capital expenditure or * transport capital expenditure you incur is a project amount if: (a) it does not form part of the * cost of a *depreciating asset you *hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with: (i) for mining capital expenditure--carrying on the * mining operations in relation to which the expenditure is incurred; or (ii) for transport capital expenditure--carrying on the * business in relation to which the expenditure is incurred. (2) Another amount of capital expenditure you incur is also a project amount so far as: (a) it does not form part of the * cost of a *depreciating asset you *hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with a project you carry on or propose to carry on for a * taxable purpose; and (d) it is one of these: (i) an amount paid to create or upgrade community infrastructure for a community associated with the project; or (ii) an amount incurred for site preparation costs for depreciating assets (except, for * horticultural plants, in draining swamp or low-lying land or in clearing land); or (iii) an amount incurred for feasibility studies for the project; or (iv) an amount incurred for environmental assessments for the project; or (v) an amount incurred to obtain information associated with the project; or (vi) an amount incurred in seeking to obtain a right to * intellectual property; or (vii) an amount incurred for ornamental trees or shrubs. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.845 Project life You work out the project life of a project by estimating how long (in years, including fractions of years) it will be from when the project starts to operate until it stops operating. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.855 When you start to deduct amounts for a project pool You start to deduct amounts for a project pool for the first income year when the project starts to operate. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.860 Meaning of mining capital expenditure (1) Mining capital expenditure is capital expenditure you incur: (a) in carrying on * mining operations; or (b) in preparing a site for those operations; or (c) on buildings or other improvements necessary for you to carry on those operations; or (d) in providing, or in contributing to the cost of providing: (i) water, light or power for use on the site of those operations; or (ii) access to, or communications with, the site of those operations; or (e) on buildings for use directly in connection with operating or maintaining * plant that is primarily and principally for * treating * minerals, or quarry materials, that you obtain by carrying on such operations; or (f) on buildings or other improvements for use directly in connection with storing minerals or quarry materials or to facilitate * minerals treatment of them (whether the storage happens before or after the treatment). (2) Capital expenditure you incur on * housing and welfare in carrying on *mining operations (except quarrying operations) is also mining capital expenditure, but only if: (a) for residential accommodation--the accommodation is provided by you, on or adjacent to a site where you carry on those operations, for the use of: (i) your employees, or someone else's employees, who are employed or engaged in those operations, or in operations of yours that are connected with those operations; or (ii) dependants of such employees; or (b) for health, education, recreation or other similar facilities, or facilities for meals--the facilities: (i) are on or adjacent to a site where you carry on those operations, and are principally for the benefit of the employees or dependants covered by paragraph (a); and (ii) are not run for profit by any person, except in the case of facilities for meals (which may be run for profit); or (c) in the case of works, including works for providing water, light, power, access or communications--the works are carried out directly in connection with the accommodation or facilities covered by this section. (3) However, expenditure on these is not mining capital expenditure: (a) railway lines, roads, pipelines or other facilities, for use wholly or partly for transporting * minerals or quarry materials, or their products, other than facilities used for transport wholly within the site of * mining operations you carry on; (b) works carried out in connection with, or buildings or other improvements constructed or acquired for use in connection with, establishing, operating or using a port facility or other facility for ships; (c) an office building that is not at or adjacent to the site of mining operations you carry on; (d) * housing and welfare in relation to quarrying operations. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.865 Meaning of transport capital expenditure (1) Transport capital expenditure is capital expenditure you incur, in carrying on a * business for a *taxable purpose, on: (a) a * transport facility; or (b) obtaining a right to construct or install a transport facility, or part of one, on land owned or leased by another entity or in a Petroleum Act offshore area or an Installations Act adjacent area within the meaning of section 6AA of the Income Tax Assessment Act 1936; or (c) paying compensation for any damage or loss caused by constructing or installing a transport facility or part of one; or (d) earthworks, bridges, tunnels or cuttings that are necessary for a transport facility. (2) Transport capital expenditure also includes capital expenditure you incur, in carrying on a * business for a * taxable purpose, by way of contribution to: (a) someone else's capital expenditure on a * transport facility or on anything else covered by a paragraph of subsection (1); or (b) an * exempt Australian government agency's capital expenditure on railway rolling-stock. (3) Transport capital expenditure does not include expenditure on: (a) road vehicles or ships; or (b) railway rolling-stock; or (c) a thing covered by the definition of housing and welfare; or (d) works for providing water, light or power, in connection with a port facility or other facility for ships; and does not include expenditure by way of contribution to that expenditure (except expenditure by way of contribution to an * exempt Australian government agency's capital expenditure on railway rolling-stock). INCOME TAX ASSESSMENT ACT 1997 - SECT 40.870 Meaning of transport facility (1) A transport facility is a railway, a road, a pipe-line, a port facility or other facility for ships, or another facility, that is used primarily and principally for transport of: (a) * minerals or quarry materials obtained by any entity in carrying on * mining operations; or (b) * processed minerals produced from minerals or quarry materials. (2) However, a facility used for these is not a transport facility: (a) transport wholly within the site of * mining operations; (b) transport of * petroleum: (i) that has been treated at a refinery; or (ii) that forms part of a system of reticulation to consumers; or (iii) to a particular consumer or consumers. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.875 Meaning of processed minerals and minerals treatment (1) Processed minerals are any of the following: (a) materials resulting from * minerals treatment of * minerals or quarry materials (except * petroleum); (b) materials resulting from sintering or calcining; (c) pellets or other agglomerated forms of iron; (d) alumina and blister copper. (2) Minerals treatment means: (a) cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing; or (b) concentration by a gravity, magnetic, electrostatic or flotation process; or (c) any other treatment: (i) that is applied to * minerals, or to quarry materials, before that concentration; or (ii) for a mineral or materials not requiring that concentration, that would, if the mineral or materials had required concentration, have been applied before the concentration; but does not include: (d) sintering or calcining; or (e) producing alumina, or pellets or other agglomerated forms of iron, or processing connected with such production. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.880 Business related costs Object (1) The object of this section is to make certain * business capital expenditure deductible over 5 years if: (a) the expenditure is not otherwise taken into account; and (b) a deduction is not denied by some other provision; and (c) the business is, was or is proposed to be * carried on for a * taxable purpose. Note: If Division 250 applies to you and an asset: (a) if section 250-150 applies--you can deduct an amount for capital expenditure you incur in relation to the asset to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you cannot deduct an amount for such expenditure. Deduction (2) You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur: (a) in relation to your * business; or (b) in relation to a business that used to be * carried on; or (c) in relation to a business proposed to be carried on; or (d) to liquidate or deregister a company of which you were a * member, to wind up a partnership of which you were a partner or to wind up a trust of which you were a beneficiary, that carried on a business. Limitations and exceptions (3) You can only deduct the expenditure, for a * business that you * carry on, used to carry on or propose to carry on, to the extent that the business is carried on, was carried on or is proposed to be carried on for a * taxable purpose. (4) You can only deduct the expenditure, for a * business that another entity used to * carry on or proposes to carry on, to the extent that: (a) the business was carried on or is proposed to be carried on for a * taxable purpose; and (b) the expenditure is in connection with: (i) your deriving assessable income from the business; and (ii) the business that was carried on or is proposed to be carried on. (5) You cannot deduct anything under this section for an amount of expenditure you incur to the extent that: (a) it forms part of the * cost of a *depreciating asset that you * hold, used to hold or will hold; or (b) you can deduct an amount for it under a provision of this Act other than this section; or (c) it forms part of the cost of land; or (d) it is in relation to a lease or other legal or equitable right; or (e) it would, apart from this section, be taken into account in working out: (i) a profit that is included in your assessable income (for example, under section 6-5 or 15-15); or (ii) a loss that you can deduct (for example, under section 8-1 or 25-40); or (f) it could, apart from this section, be taken into account in working out the amount of a * capital gain or *capital loss from a * CGT event; or (g) a provision of this Act other than this section would expressly make the expenditure non-deductible if it were not of a capital nature; or (h) a provision of this Act other than this section expressly prevents the expenditure being taken into account as described in paragraphs (a) to (f) for a reason other than the expenditure being of a capital nature; or (i) it is expenditure of a private or domestic nature; or (j) it is incurred in relation to gaining or producing * exempt income or * non-assessable non-exempt income. (6) The exceptions in paragraphs (5)(d) and (f) do not apply to expenditure you incur to preserve (but not enhance) the value of goodwill if the expenditure you incur is in relation to a legal or equitable right and the value to you of the right is solely attributable to the effect that the right has on goodwill. (7) You cannot deduct an amount under paragraph (2)(c) in relation to a * business proposed to be * carried on unless, having regard to any relevant circumstances, it is reasonable to conclude that the business is proposed to be carried on within a reasonable time. (8) You cannot deduct anything under this section for an amount of expenditure that, because of a market value substitution rule, was excluded from the * cost of a *depreciating asset or the *cost base or *reduced cost base of a * CGT asset. Note: Some examples of market value substitution rules are subsection 40-180(2) (table item 8), subsection 40-190(3) (table item 1) and sections 40-765 and 112-20. (9) You cannot deduct anything under this section for an amount of expenditure you incur: (a) by way of returning an amount you have received (except to the extent that the amount was included in your assessable income or taken into account in working out an amount so included); or (b) to the extent that, for another entity, the amount is a * return on or of: (i) an * equity interest; or (ii) a * debt interest that is an obligation of yours. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.885 Non-arm's length transactions If you incurred capital expenditure, or received an amount, under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm's length; and (b) apart from this section: (i) the amount of the expenditure would be more than the * market value of what it was for; or (ii) the amount you received would be less than the market value of what it was for; the amount of expenditure, or the amount received, you take into account under this Subdivision is that market value. Guide to Subdivision 40-J INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1000 What this Subdivision is about You can deduct amounts for capital expenditure incurred for establishing trees that meet the requirements for constituting a carbon sink forest. Table of sections Operative provisions 40-1005 Deduction for expenditure for establishing trees in carbon sink forests 40-1010 Expenditure for establishing trees in carbon sink forests 40-1015 Carbon sequestration by trees 40-1020 Certain expenditure disregarded 40-1025 Non-arm's length transactions Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1005 Deduction for expenditure for establishing trees in carbon sink forests (1) You can deduct an amount for an income year if: (a) you incur capital expenditure that is covered under section 40-1010 in relation to particular trees established in the income year; and (b) you satisfy a condition in subsection (5) for the trees when they are established. (2) The amount of the deduction is the amount of the expenditure. (3) You can deduct an amount for an income year if: (a) you incur capital expenditure in the income year or an earlier income year for establishing particular trees; and (b) that expenditure is not covered under section 40-1010 in relation to the trees, because some or all of the trees are established after the end of the income year; and (c) the trees established after the end of the income year are established within 4 months after the end of the income year; and (d) you could deduct the amount for the income year under subsection (1) in respect of the expenditure, assuming that, for the purposes of paragraphs 40-1010(1)(a) and (2)(a), the income year ended 4 months after it actually ended. (4) If: (a) you can deduct an amount for an income year under subsection (3) in relation to particular trees; and (b) you incur capital expenditure in the next income year for establishing other trees; in determining whether you can deduct an amount under subsection (1) for the next income year in respect of the other trees, for the purposes of paragraph 40-1010(2)(a), disregard the trees mentioned in paragraph (a). (5) The conditions are as follows: Conditions for deduction for establishing trees in carbon sink forest Item Condition 1 You own the trees and any holder of a lease, lesser interest or licence relating to the land occupied by the trees does not use the land for the primary and principal purpose of * carbon sequestration by the trees. 2 The trees occupy land you hold under a lease, or a * quasi-ownership right granted by an * exempt Australian government agency or an *exempt foreign government agency, and: (a) the lease or quasi-ownership right enables you to use the land for the primary and principal purpose of * carbon sequestration by the trees; and (b) any holder of a lesser interest or licence relating to the land does not use the land for the primary and principal purpose of carbon sequestration by the trees. 3 You: (a) hold a licence relating to the land occupied by the trees; and (b) use the land for the primary and principal purpose of * carbon sequestration by the trees, as a result of holding the licence. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1010 Expenditure for establishing trees in carbon sink forests (1) Expenditure is covered under this section in relation to particular trees if: (a) the trees are established in an income year; and (b) you incur the expenditure in the income year or an earlier income year for establishing the trees; and (c) you are carrying on a * business in the income year; and (d) your primary and principal purpose for establishing the trees is * carbon sequestration by the trees (see section 40-1015); and (e) your purposes for establishing the trees do not include any of the following: (i) felling the trees; (ii) using the trees for * commercial horticulture; and (f) you do not incur the expenditure under: (i) a * managed investment scheme; or (ii) a * forestry managed investment scheme; and (g) all of the conditions in subsection (2) are satisfied for the trees; and (h) you give the Commissioner, in accordance with subsection (4), a statement that: (i) sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and (ii) is in the * approved form. (2) The conditions are as follows: (a) at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more; (b) at the time the trees are established, it is more likely than not that they will: (i) attain a crown cover of 20% or more; and (ii) reach a height of at least 2 metres; (c) on 1 January 1990, the area occupied by the trees was clear of other trees that: (i) attained, or were more likely than not to attain, a crown cover of 20% or more; and (ii) reached, or were more likely than not to reach, a height of at least 2 metres; (d) the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3). (3) The * Climate Change Minister must, by legislative instrument, make guidelines about environmental and natural resource management in relation to the establishment of trees for the purposes of * carbon sequestration. (4) The statement mentioned in paragraph (1)(h) is to be given to the Commissioner no later than: (a) if you lodge your * income tax return for the income year within 5 months after the end of the income year--the day you lodge that income tax return; or (b) otherwise--5 months after the end of the income year. (5) However, expenditure is not covered under this section if the * Climate Change Secretary gives the Commissioner a notice under subsection (6) in relation to the trees. (6) The * Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees. (7) A person may apply to the * AAT for review of a decision (as defined in the Administrative Appeals Tribunal Act 1975) of the * Climate Change Secretary to give a notice under subsection (6). (8) The Commissioner may give the * Climate Change Secretary a copy of the statement mentioned in paragraph (1)(h), for the purposes of subsections (5), (6) and (7). INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1015 Carbon sequestration by trees Carbon sequestration by trees means the process by which trees absorb carbon dioxide from the atmosphere. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1020 Certain expenditure disregarded In working out a deduction under this Subdivision in relation to the establishment of trees, disregard expenditure incurred: (a) in draining swamp or low-lying land; or (b) in clearing land. INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1025 Non-arm's length transactions If an entity incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom the entity did not deal at * arm's length; and (b) apart from this section, the amount of the expenditure would be more than the * market value of what it was for; the amount of expenditure taken into account under this Subdivision is that market value. Guide to Division 41 INCOME TAX ASSESSMENT ACT 1997 - SECT 41.1 What this Division is about You may be able to deduct an amount in relation to a depreciating asset for the 2008-09, 2009-10, 2010-11 or 2011-12 income year if: (a) you can deduct an amount for the decline in value for the asset for the relevant year under Subdivision 40-B; and (b) you make certain new investments in respect of the asset in the period starting on 13 December 2008 and ending on 31 December 2009; and (c) the total of those new investments is at least $1000 (for small businesses) or $10,000 (for other businesses). Table of sections Operative provisions 41-5 Object of Division 41-10 Entitlement to deduction for investment 41-15 Amount of deduction 41-20 Recognised new investment amount 41-25 Investment commitment time 41-30 First use time 41-35 New investment threshold Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 41.5 Object of Division The object of this Division is to provide a temporary business tax break for Australian businesses using assets in Australia, with a view to encouraging business investment and economic activity. INCOME TAX ASSESSMENT ACT 1997 - SECT 41.10 Entitlement to deduction for investment (1) You can deduct an amount for an income year in relation to an asset if: (a) the asset is a * depreciating asset, other than an intangible asset; and (b) you can deduct an amount under section 40-25 in relation to the asset for the income year; and (c) the income year is the 2008-09, 2009-10, 2010-11 or 2011-12 income year; and (d) the total of the * recognised new investment amounts for the income year in relation to the asset equals or exceeds the * new investment threshold for the income year in relation to the asset. (2) Subsection 355-715(2) (tax offset for assets used for R&D activities) does not apply to a deduction under subsection (1). (3) For the purposes of paragraph (1)(b), in determining whether you can deduct the amount in relation to the asset under section 40-25 for the income year: (a) disregard section 40-55 if the asset is a * car for which you use the "12% of original value" method for that income year; and (aa) disregard section 40-90 (reduction in cost where debt is forgiven); and (ab) disregard subsection 40-365(5) (reduction in cost for replacement asset where involuntary disposal); and (b) disregard Subdivision 328-D (capital allowances for small business entities); and (c) disregard subsection 355-715(2) (tax offset for assets used for R&D activities). Counting additional recognised new investment amounts for the purposes of meeting the threshold (4) For the purposes of paragraph (1)(d), treat each of the following as a * recognised new investment amount for the income year in relation to the asset (the relevant asset): (a) a recognised new investment amount for a previous income year in relation to the relevant asset; (b) a recognised new investment amount for the income year or a previous income year in relation to another asset, if: (i) the other asset is part of a set of assets including the relevant asset; or (ii) the other asset is identical, or substantially identical, to the relevant asset; (c) a recognised new investment amount for the income year or a previous income year in relation to an asset * held by another entity, if: (i) subsection 40-35(1) (jointly held depreciating assets) applies in relation to the relevant asset because it is your interest in an asset (the underlying asset); and (ii) the asset held by the other entity is the other entity's interest in the underlying asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 41.15 Amount of deduction (1) The amount that you can deduct is: (a) if the * new investment threshold for the income year in relation to the asset is $1000 (small business entities)--50% of the total of the * recognised new investment amounts for the income year in relation to the asset; or (b) if paragraph (a) does not apply but subsection (3), (4) or (5) applies--10% of that total; or (c) otherwise--the sum of: (i) 30% of the total of the recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2); and (ii) 10% of the total of the other recognised new investment amounts for the income year in relation to the asset. (2) A * recognised new investment amount meets the condition in this subsection if: (a) the * investment commitment time for the amount occurred before 1 July 2009; and (b) the * first use time for the amount occurred before 1 July 2010. (3) This subsection applies if the income year is the 2011-12 income year. (4) This subsection applies if: (a) you can deduct the amount because of paragraph 41-10(4)(a); and (b) the * new investment threshold for the income year in relation to the asset exceeds the total of the * recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2). (5) This subsection applies if: (a) you can deduct the amount because of paragraph 41-10(4)(b) or (c); and (b) the * new investment threshold for the income year in relation to the asset exceeds the sum of: (i) the total of the * recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2); and (ii) the total of the amounts treated under paragraph 41-10(4)(b) or (c) (as the case requires) as recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2). INCOME TAX ASSESSMENT ACT 1997 - SECT 41.20 Recognised new investment amount (1) An amount is a recognised new investment amount for the income year in relation to the asset if: (a) either: (i) the amount is included in the first element of the asset's * cost (worked out in accordance with Subdivision 40-C); or (ii) the amount is included in the second element of the asset's cost under paragraph 40-190(2)(a); and (b) the * investment commitment time for the amount occurs in the period: (i) starting at 12.01 am, by legal time in the Australian Capital Territory, on 13 December 2008; and (ii) ending on 31 December 2009; and (c) the * first use time for the amount occurs: (i) no later than the end of the income year; and (ii) no later than 31 December 2010; and (d) at the first use time for the amount, it is reasonable to conclude that you will use the asset principally in Australia for the principal purpose of * carrying on a *business; and (e) if the amount is included in the first element of the asset's cost--the first use time for the amount is the first time you or any other entity have used the asset, or have it installed ready for use, for any purpose; and (f) you have not been entitled to a deduction under this Division for any previous income year in relation to the amount. (2) Treat the requirements in paragraph (1)(d) as not being met if, at the first use time for the amount, it is reasonable to conclude that the asset will never be located in Australia. (3) For the purposes of paragraph (1)(e), disregard any previous use of the asset that was merely for the purposes of reasonable testing or trialling. (4) Treat the requirements in paragraph (1)(e) as not being met if the amount becomes included in the first element of the asset's * cost at a time because of paragraph 40-205(a) (splitting depreciating assets) or 40-210(a) (merging depreciating assets). (5) In determining the amount of a * recognised new investment amount, disregard: (a) subsection 40-90(2) (reduction in cost where debt is forgiven); and (b) paragraph 40-365(5)(a) (reduction in cost for replacement asset where involuntary disposal). INCOME TAX ASSESSMENT ACT 1997 - SECT 41.25 Investment commitment time (1) The investment commitment time for the amount is: (a) if the amount is included in the first element of the asset's * cost--the time at which you: (i) enter into a contract under which you * hold the asset at that time, or will hold the asset at a later time; or (ii) start to construct the asset; or (iii) start to hold the asset in some other way; or (b) if the amount is included in the second element of the asset's cost--the time at which you enter into a contract, or start construction, for the economic benefit in relation to which the amount becomes, or will become, included in that element under paragraph 40-190(2)(a). Integrity rule (2) Subsection (3) applies in relation to an amount if: (a) at a time, you: (i) enter into a contract under which you * hold an asset at that time, or will hold the asset at a later time; or (ii) start to construct an asset; or (iii) start to hold an asset in some other way; and (b) at a later time, you engage in conduct that results in you: (i) entering into a contract under which you hold the asset mentioned in paragraph (a) (or an identical or substantially similar asset) at that later time, or will hold that asset (or an identical or substantially similar asset) at an even later time; or (ii) starting to construct an asset that is identical or substantially similar to the asset mentioned in paragraph (a); or (iii) starting to hold the asset mentioned in paragraph (a) (or an identical or substantially similar asset) in some other way; and (c) you engage in that conduct for the purpose, or for purposes that include the purpose, of becoming entitled to a deduction under this Division. (3) Despite paragraph (1)(a), the investment commitment time for an amount to which that paragraph would otherwise apply is the time mentioned in paragraph (2)(a). (3A) For the purposes of paragraph (1)(a) and subsection (2), treat yourself as having started to construct an asset at a time if you first incur expenditure in respect of the construction of the asset at that time. (3B) For the purposes of paragraph (1)(b), treat yourself as having started construction for an economic benefit at a time if you first incur expenditure in respect of the construction for the benefit at that time. Options (4) To avoid doubt, for the purposes of this section, you do not enter into a contract under which you * hold an asset merely because you acquire an option to enter into such a contract. INCOME TAX ASSESSMENT ACT 1997 - SECT 41.30 First use time The first use time for the amount is: (a) if the amount is included in the first element of the asset's * cost--the time at which you start to use the asset, or have it * installed ready for use; or (b) if the amount is included in the second element of the asset's cost--the later of: (i) the time at which it becomes included in that element under paragraph 40-190(2)(a); or (ii) the time mentioned in paragraph (a). INCOME TAX ASSESSMENT ACT 1997 - SECT 41.35 New investment threshold The new investment threshold for an income year (the relevant income year) in relation to an asset means: (a) $1000 if you are a * small business entity during any of the following income years: (i) the income year in which occurs the * investment commitment time for any * recognised new investment amount for the asset in relation to the relevant income year; (ii) the income year in which occurs the * first use time for any such amount; (iii) the relevant income year; or (b) otherwise--$10,000. Table of Subdivisions Guide to Division 43 43-A Key operative provisions 43-B Establishing the deduction base 43-C Your area and your construction expenditure 43-D Deductible uses of capital works 43-E Special rules about uses 43-F Calculation of deduction 43-G Undeducted construction expenditure 43-H Balancing deduction on destruction of capital works Guide to Division 43 INCOME TAX ASSESSMENT ACT 1997 - SECT 43.1 What this Division is about You can deduct certain capital expenditure on assessable income producing buildings and other capital works. This Division sets out the rules for working out those deductions. Table of sections 43-2 Key concepts used in this Division INCOME TAX ASSESSMENT ACT 1997 - SECT 43.2 Key concepts used in this Division The following graphic introduces the key concepts used in this Division and shows the relationships between them. Guide to Subdivision 43-A INCOME TAX ASSESSMENT ACT 1997 - SECT 43.5 What this Subdivision is about This Subdivision contains the key operative provisions for this Division, including all of the deduction entitlement provisions. You should read all of this Subdivision to understand how this Division works. Table of sections Operative provisions 43-10 Deductions for capital works 43-15 Amount you can deduct 43-20 Capital works to which this Division applies 43-25 Rate of deduction 43-30 No deduction until construction is complete 43-35 Requirement for registration under the Industry Research and Development Act 43-40 Deduction for destruction of capital works 43-45 Certain anti-avoidance provisions 43-50 Links and signposts to other parts of the Act 43-55 Anti-avoidance--arrangement etc. with tax-exempt entity Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.10 Deductions for capital works (1) You can deduct an amount for capital works for an income year. (2) You can only deduct the amount if: (a) the capital works have a * construction expenditure area; and (b) there is a * pool of construction expenditure for that area; and (c) you use * your area in the income year in the way set out in Table 43-140 (Current year use). Note 1: The deduction is limited to capital works to which this Division applies, see section 43-20. Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi-ownership rights over land on which capital works are constructed, can deduct an amount under this Division. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.15 Amount you can deduct (1) The amount you can deduct is a portion of * your construction expenditure. However, it cannot exceed the amount of * undeducted construction expenditure for * your area. Note: The limit in this subsection has 2 effects: * It ensures that not more than 100% of your construction expenditure can be deducted. * It imposes a time limit on the period over which your construction expenditure can be deducted. For capital works begun before 27 February 1992, that period will be 25 years if the rate of deduction is 4% or 40 years if the rate is 2.5%. For other capital works, the period will be 25 years or 40 years or some period between 25 and 40 years depending on their use. (2) Your deduction is calculated under section 43-210 or 43-215. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.20 Capital works to which this Division applies Buildings (1) This Division applies to capital works being a building, or an extension, alteration or improvement to a building: (a) begun in Australia after 21 August 1979; or (b) begun outside Australia after 21 August 1990. Note: Section 43-80 explains when capital works begin. Structural improvements (2) This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia. (3) Some examples of structural improvements are: (a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and (b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway. (4) This Division does not apply to structural improvements being: (a) earthworks that: (i) are not integral to the installation or construction of a structure; and (ii) are permanent (assuming they are maintained in reasonably good order and condition); and (iii) can be economically maintained in reasonably good order and condition for an indefinite period; for example, unlined channels, unlined basins, earth tanks and dirt tracks; or (b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields. Environment protection earthworks (5) This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if: (a) they are constructed as a result of carrying out of * environmental protection activities; and (b) they can be economically maintained in reasonably good order and condition for an indefinite period; and (c) they are not integral to the construction of capital works; and (d) the expenditure on the capital works was incurred after 18 August 1992. Note: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an environmental protection activity. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.25 Rate of deduction (1) For capital works begun after 26 February 1992, there is a basic entitlement to a rate of 2.5% for parts used as described in Table 43-140 (Current year use). The rate increases to 4% for parts used as described in Table 43-145 (Use in the 4% manner). (2) For capital works begun before 27 February 1992 and used as described in Table 43-140, the rate is: (a) 4% if the capital works were begun after 21 August 1984 and before 16 September 1987; or (b) 2.5% in any other case. Note: Section 43-80 explains when capital works begin. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.30 No deduction until construction is complete You cannot deduct an amount for any period before the completion of construction of the capital works even though you used them, or part of them, before completion. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.35 Requirement for registration under the Industry Research and Development Act You may deduct an amount under this Division on the basis of using capital works for the purpose of conducting * R&D activities only if: (a) you are registered under section 27A (registering R&D activities) of the Industry Research and Development Act 1986 for the R&D activities for an income year; or (b) if you are an * R&D partnership--an * R&D entity, who was a partner of the R&D partnership at some time while the R&D activities were conducted, is registered under that section for the R&D activities for an income year. Note 1: R&D activities must be conducted in connection with a business carried on for the purpose of producing assessable income, see section 43-195. Note 2: You may still deduct an amount under this Division if you were registered for the R&D activities under former section 39J (Registration of eligible companies) of the Industry Research and Development Act 1986 (see section 355-200 of the Income Tax (Transitional Provisions) Act 1997). INCOME TAX ASSESSMENT ACT 1997 - SECT 43.40 Deduction for destruction of capital works (1) You can deduct an amount if all or a part of * your area is destroyed in an income year and: (a) you have been allowed, or can claim, a deduction under this Division, or former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936, for your area; and (b) there is an amount of * undeducted construction expenditure for your area; and (c) you were using your area in the way that applies to it under Table 43-140 (Current year use) immediately before the destruction or, if not, neither you nor any other entity used your area for any purpose since it was last used by you in that way. (2) The deduction is allowable in the income year in which the destruction occurs, and is calculated under section 43-250. Note: The effect of this provision is to allow you to deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. However, you must reduce the deduction by any insurance and salvage receipts. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.45 Certain anti-avoidance provisions These anti-avoidance provisions: (a) section 51AD (Deductions not allowable in respect of property under certain leveraged arrangements) of the Income Tax Assessment Act 1936; (b) Division 16D (Certain arrangements relating to the use of property) of Part III of that Act; apply to your deductions under this Division for an asset as if you were the owner of the asset instead of any other person. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.50 Links and signposts to other parts of the Act Links (1) No part of a * pool of construction expenditure can be a deduction, or taken into account in working out the amount of a deduction, under a provision of this Act other than this Division. (2) No part of an amount incurred by an entity in acquiring capital works for which there is a * pool of construction expenditure can be a deduction, or taken into account in working out the amount of a deduction, under a provision of this Act other than this Division. (3) You will be taken not to be the owner of any part of capital works that are the subject of a lease to which you have chosen to apply section 104-115 (CGT event F2). The lessee or sublessee will be taken to be the owner of that part. Note 1: Choosing to apply section 104-115 results in the lease being treated for CGT purposes more like an outright disposal. Note 2: See subsection 43-180(3) for the effect of the rule in subsection (3) of this section on the need to own 10 apartments, units or flats in an apartment building. Signposts (6) There are special record-keeping rules that apply to this Division in subsection 262A(4AJA) of the Income Tax Assessment Act 1936. (7) Your deductions under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E. (8) Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.55 Anti-avoidance--arrangement etc. with tax-exempt entity (1) You will not be allowed a deduction under this Division for an income year if the Commissioner is satisfied that: (a) you entered into an * arrangement with: (i) an entity to which section 50-5, 50-10, 50-15, 50-20, 50-25, 50-30, 50-40 or 50-45 (dealing with * exempt income) applies; or (ii) an STB (within the meaning of Division 1AB of Part III of the Income Tax Assessment Act 1936) whose * ordinary income and * statutory income is exempt from income tax; under which you were to pay an amount, or transfer property, directly or indirectly, to the entity; and (b) the amount of the payment or the value of the property is calculated by reference to the amount of a deduction allowable to you under this Division; and (c) a purpose of the arrangement that is not a merely incidental purpose is to ensure that the benefit of the deduction would pass wholly or substantially to the entity, whether directly or indirectly. (2) Subsection (1) applies to * arrangements entered into with an entity referred to in subparagraph (1)(a)(i) after 1 May 1980 that relate to deductions for * hotel buildings or *apartment buildings begun before 1 July 1997. (3) Subsection (1) also applies to * arrangements entered into with an entity referred to in subparagraph (1)(a)(ii) after 30 June 1994 that relate to deductions for * hotel buildings or *apartment buildings begun before 1 July 1997. Guide to Subdivision 43-B INCOME TAX ASSESSMENT ACT 1997 - SECT 43.60 What this Subdivision is about This Subdivision explains the meaning of the terms construction expenditure, construction expenditure area and pool of construction expenditure. Table of sections 43-65 Explanatory material Operative provisions 43-70 What is construction expenditure? 43-72 Meaning of forestry road, timber operation and timber mill building 43-75 Construction expenditure area 43-80 When capital works begin 43-85 Pools of construction expenditure 43-90 Table of intended use at time of completion of construction 43-95 Meaning of hotel building and apartment building 43-100 Certificates by Innovation Australia INCOME TAX ASSESSMENT ACT 1997 - SECT 43.65 Explanatory material Expenditure in respect of the construction of capital works is only eligible for a deduction under this Division if there is a construction expenditure area for the capital works. The area defined as the construction expenditure area may comprise the whole of the capital works or only part of them. Whether there is a construction expenditure area for capital works and how it is identified depends on the following factors: * the type of expenditure incurred; * the time when the capital works began; * the area of the capital works that is to be owned, leased or held by the entity that incurred the expenditure; * for capital works begun before 1 July 1997, the area of the capital works that was to be used in a particular manner. A pool of construction expenditure is that part of an amount of construction expenditure that is attributable to a particular construction expenditure area. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.70 What is construction expenditure? (1) Construction expenditure is capital expenditure incurred in respect of the construction of capital works. (2) Construction expenditure does not include: (a) expenditure on acquiring land; or (b) expenditure on demolishing existing structures; or (c) expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or (d) expenditure on landscaping; or (e) expenditure on * plant; or (f) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for the * purpose of producing assessable income, under: (i) Subdivision 40-F (about primary production depreciating assets), Subdivision 40-G (about capital expenditure of primary producers and other landholders), Subdivision 40-H (about capital expenditure that is immediately deductible) or Subdivision 40-I (about capital expenditure that is deductible over time); or (ii) the former Division 330 of this Act or the former Division 10, 10AAA or 10AA of Part III of the Income Tax Assessment Act 1936 (all of which dealt with mining and/or quarrying); or (iii) section 73A of the Income Tax Assessment Act 1936 (about expenditure on scientific research); or (iv) the former Subdivision 387-A of this Act or the former section 75D of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure to prevent land degradation); or (v) the former Subdivision 387-B of this Act or the former section 75B of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure on facilities to conserve or convey water); or (vi) the former Subdivision 387-G of this Act or the former section 124F or 124JA of the Income Tax Assessment Act 1936 (all of which allowed deductions for capital expenditure on forestry roads and/or timber mill buildings); or (fa) any of these kinds of expenditure if a deduction is allowable for the expenditure, or would be allowable if property had been used for the purpose of producing assessable income: (i) * mining capital expenditure or * transport capital expenditure; (ii) expenditure on a * forestry road in connection with carrying on a * timber operation for a *taxable purpose; (iii) expenditure for the construction or acquisition of a * timber mill building; (iv) expenditure on a * depreciating asset you can deduct under subsection 40-80(1) (about exploration and prospecting); or (g) expenditure on property for which a deduction under section 355-305 or 355-520 is allowable for the property, or would be allowable if the property were for use for conducting * R&D activities; or (h) eligible heritage conservation expenditure within the meaning of the former Subdivision AAD of Division 17 of Part III of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.72 Meaning of forestry road, timber operation and timber mill building (1) A forestry road is a road constructed primarily and principally for the purpose of providing access to an area to enable: (a) trees to be planted or tended in the area; or (b) timber felled in the area to be removed. For this purpose, a road includes any bridge, culvert or similar work forming part of the road. (2) A timber operation is: (a) planting or tending trees for felling; or (b) felling standing timber; or (c) removing felled timber; or (d) milling felled timber or processing it in another way. (3) A timber mill building is a building: (a) for use primarily and principally: (i) in carrying on your * business of milling timber for a * taxable purpose; or (ii) as residential accommodation for your employees engaged in connection with the business, or for their dependants; and (b) located in a forest, and in or adjacent to the area where timber milled in the business is, or is to be, felled. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.75 Construction expenditure area (1) The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the * construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi-ownership right over land granted by an *exempt Australian government agency or an * exempt foreign government agency. Note: Section 43-80 explains when capital works begin. (2) The construction expenditure area of capital works begun before 1 July 1997 is the part of the capital works on which the * construction expenditure was incurred that: (a) at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi-ownership right over land granted by an * exempt Australian government agency or an *exempt foreign government agency; and (b) at the time of completion of construction, was to be used in the way described in Column 3 of Table 43-90 (intended use at completion) for the time period when the capital works began as set out in Column 1. (3) There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if: (a) the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and (b) the other entity is not an * associate of the entity; and (c) the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind. Note: Subsection (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers. (4) The construction of the capital works must be complete before the * construction expenditure area is determined. (5) Only one * construction expenditure area is created each time an entity constructs capital works. Example: An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area. (6) A separate * construction expenditure area will be created each time an entity undertakes the construction of capital works. Example: In the diagram below, area 1 relates to the original construction of a building which gives rise to one construction expenditure area. Area 2 is a subsequent extension of the same building which gives rise to another, while area 3 is a later renovation of the entire building which gives rise to another. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.80 When capital works begin Capital works are taken to begin when the first step in the construction phase starts. For example, the pouring of foundations or sinking of pilings for a building. Note 1: Capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Note 2: The time when capital works begin is relevant for determining whether the capital works qualify for deduction, the use to which those works must be put, the rate of deduction and the calculation mechanism used. However, the time when capital works begin does not limit what qualifies as construction expenditure. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.85 Pools of construction expenditure (1) A pool of construction expenditure is so much of the * construction expenditure incurred by an entity on capital works as is attributable to the * construction expenditure area. (2) In applying subsection (1) in a case to which subsection 43-75(3) (dealing with purchases from speculative builders) applies, assume that the expenditure incurred by the other entity was capital expenditure, but that the limitations in subsection 43-70(2) (which sets out types of expenditure that are not * construction expenditure) still apply to the other entity's expenditure. Note: The builder's profit margin does not form part of the construction expenditure of the purchaser. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.90 Table of intended use at time of completion of construction Column 1 Date capital works begin Column 2 Type of capital works Column 3 Intended use on completion Time period 1: 22/8/79 to 19/7/82 (inclusive) Hotel building For use by any entity wholly or mainly to operate a hotel, motel or guest house that has at least 10 bedrooms that are for use wholly or mainly to provide short-term accommodation for travellers. Apartment building The building consisted of: (a) at least 10 apartments, units or flats each of which was for use wholly or mainly to provide short-term accommodation for travellers; or (b) at least 10 apartments, units or flats each of which was for use for that purpose and facilities that are wholly or mainly for use in association with providing short-term accommodation for travellers in those apartments, units or flats. Time period 2: 20/7/82 to 17/7/85 (inclusive) Hotel building As for time period 1. Apartment building As for time period 1. Non-residential building For: (a) use by the entity that incurred the expenditure for the * purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income. Time period 3: 18/7/85 to 20/11/87 (inclusive) Any building For: (a) use by the entity that incurred the expenditure for the * purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation. Time period 4: 21/11/87 to 26/2/92 (inclusive) Any building For: (a) use by the entity that incurred the expenditure for the * purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation; or (d) use by the entity that incurred the expenditure to carry on research and development activities (within the meaning of former section 73B of the Income Tax Assessment Act 1936) by or for that entity, or for disposal by that entity to another entity for use by the other entity for carrying on research and development activities (within the meaning of that former section) by or for the other entity. Time period 5: 27/2/92 to 18/8/92 (inclusive) Hotel building As for time period 1. Apartment building As for time period 1. Other buildings As for any building in time period 4. Structural improvements As for any building in time period 4. Time period 6: 19/8/92 to 30/6/97 (inclusive) Hotel building As for time period 1. Apartment building As for time period 1. Other buildings As for any building in time period 4. Structural improvements As for any building in time period 4. Environment protection earthworks As for any building in time period 4. Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example, certain facilities that are not commonly provided in a hotel, motel or guest house in Australia are taken not to be used or for use to operate a hotel, motel or guest house, see subsection 43-180(6). INCOME TAX ASSESSMENT ACT 1997 - SECT 43.95 Meaning of hotel building and apartment building (1) A hotel building is: (a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43-90 (intended use at completion) for a hotel building; or (b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43-145 (use in the 4% manner) for a hotel building. (2) An apartment building is: (a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43-90 for an apartment building; or (b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43-145 for an apartment building. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.100 Certificates by Innovation Australia A certificate by * Innovation Australia stating that activities carried on by or for an entity were or were not * core R&D activities or * supporting R&D activities is conclusive for the purposes of this Division. Note: Core R&D activities and supporting R&D activities are kinds of R&D activities. Guide to Subdivision 43-C INCOME TAX ASSESSMENT ACT 1997 - SECT 43.105 What this Subdivision is about This Subdivision explains your area and your construction expenditure. Table of sections 43-110 Explanatory material Operative provisions 43-115 Your area and your construction expenditure--owners 43-120 Your area and your construction expenditure--lessees and quasi-ownership right holders 43-125 Lessees' or right holders' pools can revert to owner 43-130 Identifying your area on acquisition or disposal INCOME TAX ASSESSMENT ACT 1997 - SECT 43.110 Explanatory material You can only get a deduction under this Division for an income year if you own, lease or hold part of a construction expenditure area of capital works. The area you own, lease or hold is called your area. In working out your deductions, you must identify your area for each construction expenditure area of the capital works. Your area may comprise the whole of the construction expenditure area or part of it. Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)). Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.115 Your area and your construction expenditure--owners (1) Your area is the part of the * construction expenditure area that you own. (2) Your construction expenditure is the portion of the * pool of construction expenditure that is attributable to your area. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.120 Your area and your construction expenditure--lessees and quasi-ownership right holders Own expenditure (1) Your area is the part of the * construction expenditure area that you lease, or hold under a * quasi-ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency, and that: (a) is attributable to a * pool of construction expenditure that you incurred; and (b) you have continuously leased or held since the construction was completed. Earlier lessees' or holders' expenditure (2) Your area is the part of the * construction expenditure area that you lease, or hold under a * quasi-ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency, and that: (a) is attributable to a * pool of construction expenditure incurred by another lessee or holder of a quasi-ownership right over land; and (b) has been continuously leased or held since the construction was completed by the lessee or holder who incurred the expenditure or an assignee of that lessee's lease or that holder's quasi-ownership right over land. (3) Your construction expenditure is the portion of the * pool of construction expenditure that is attributable to your area. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.125 Lessees' or right holders' pools can revert to owner (1) An amount that relates to a * pool of construction expenditure that arises as a result of expenditure incurred by a lessee or a holder of a * quasi-ownership right over land: (a) can only be deducted by a lessee or a holder of a quasi-ownership right over land who satisfies subsection 43-120(1) or (2); and (b) cannot be deducted by the owner of the capital works while there is a lessee or a holder of a quasi-ownership right over land who satisfies that subsection. (2) The owner of the capital works may deduct an amount that relates to that pool if there is no longer a lessee or a holder of a * quasi-ownership right over land who satisfies subsection 43-120(1) or (2). INCOME TAX ASSESSMENT ACT 1997 - SECT 43.130 Identifying your area on acquisition or disposal There will be a separate * your area at each time in an income year when you: (a) acquire an additional part of a * construction expenditure area; or (b) dispose of some but not all of a construction expenditure area. Example: You own half of a building (part A) throughout the income year, and you acquire the other half (part B) on 1 January. This section ensures that part A is your area for the entire year and that part B is your area for the second 6 months of the year. Note: This ensures that the same area is not counted twice in calculating your deduction. You will have to make separate deduction calculations if you have identified more than one area as your area of the capital works. Guide to Subdivision 43-D INCOME TAX ASSESSMENT ACT 1997 - SECT 43.135 What this Subdivision is about You can only get a deduction under this Division if you use your area in a way described in Table 43-140 or 43-145 of this Subdivision. Table of sections Operative provisions 43-140 Using your area in a deductible way 43-145 Using your area in the 4% manner 43-150 Meaning of industrial activities Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.140 Using your area in a deductible way (1) The following table sets out the way you must use * your area in an income year for a deduction to be allowed under section 43-10 (the main deduction provision). The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use. Table 43-140--Current year use Column 1 Date capital works begin Column 2 Type of capital works Column 3 Use of your area at some time in the income year Time period 1: After 30/6/97 Any capital works You use * your area for the purpose of: (a) producing assessable income; or (b) conducting * R&D activities. Time period 2: 27/2/92 to 30/6/97 (inclusive) * Hotel building You use * your area for the *purpose of producing assessable income. * Apartment building You use * your area for the *purpose of producing assessable income. Other capital works You use * your area for the purpose of: (a) producing assessable income; or (b) conducting * R&D activities. Time period 3: Before 27/2/92 * Hotel building You use * your area for the *purpose of producing assessable income and: (a) all or part of that area is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. * Apartment building You use * your area for the *purpose of producing assessable income and: (a) that area is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that area is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). Other capital works You use * your area for the purpose of: (a) producing assessable income; or (b) conducting * R&D activities. Note 1: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example: * Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43-160. * R&D activities must be conducted in connection with a business carried on for the purpose of producing assessable income, see section 43-195. Note 2: If Division 250 applies to you and an asset that is a capital work: (a) if section 250-150 applies--you are taken to be using the capital work for the purpose of producing assessable income, or for the purpose of conducting R&D activities, to the extent specified in a determination made under subsection 250-150(3); or (b) otherwise--you are taken not to be using the capital work for such a purpose. (2) This Division applies to an entity as if the entity used property for the * purpose of producing assessable income if the entity uses the property for: (a) * environmental protection activities; or (b) the environmental impact assessment of a project; unless a provision of this Act expressly provides that that use is not for the purpose of producing assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.145 Using your area in the 4% manner You use a part of * your area in the 4% manner if you use it as described in the following Table. The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use. Table 43-145--Use in the 4% manner Column 1 Date capital works begin Column 2 Type of capital works Column 3 Use of a part of * your area at some time in the income year Time period 1: After 30/6/97 Capital works that are buildings You use the part of * your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. You use the part of * your area for the *purpose of producing assessable income and: (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). You use the part of * your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for * industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. Time period 2: 27/2/92 to 30/6/97 (inclusive) * Hotel building You use the part of * your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. * Apartment building You use the part of * your area for the * purpose of producing assessable income and: (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). Other buildings You use the part of * your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for * industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example: * Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43-160. * A suite of rooms in a hotel building may be treated as one bedroom, see subsection 43-180(2). INCOME TAX ASSESSMENT ACT 1997 - SECT 43.150 Meaning of industrial activities "Industrial activities" means: (a) any of the following activities (core activities): (i) operations where manufactured items are derived from other goods even if those manufactured items are themselves used as parts or materials in the manufacture of other items; (ii) operations (other than packing, placing in containers or labelling) by which manufactured items are brought into or maintained in the form or condition in which they are sold or used, even if they are for sale or use as parts or materials in the manufacture of other items; (iii) the separation of a metal or a compound of a metal from its ore (not including crushing, grinding, breaking, screening or sizing to facilitate that separation) or the treatment or processing of a metal or a compound of a metal after its separation; (iv) for a metal or a compound of a metal not requiring separation--applying to the metal or compound a treatment or process which, if the metal or compound had required separation, would not have been applied until after the separation; (v) refining * petroleum; (vi) scouring or carbonising wool; (vii) milling timber; (viii) freezing primary products; (ix) printing, lithographing or engraving, or a similar process, in the course of carrying on a business as a publisher, printer, lithographer or engraver; (x) curing meat or fish; (xi) producing chilled or frozen meat; (xii) pasteurising milk; (xiii) canning or bottling foodstuffs; (xiv) producing electric current, hydraulic power, steam, compressed air or gases (other than natural gas) for the purpose of sale, or use wholly or mainly in carrying on another activity mentioned in this paragraph; or (b) any of the following activities: (i) the packing, placing in containers or labelling of any goods resulting from the carrying on of core activities; (ii) the disposal of waste substances resulting from the carrying on of core activities; (iii) the cleansing or sterilising of bottles, vats or other containers used by the entity to store goods to be used in carrying on core activities or goods resulting from the carrying on of core activities; (iv) the assembly, maintenance, cleansing, sterilising or repair of property used in carrying on core activities; (v) the storage, within premises in which core activities are carried on, or premises contiguous to those premises, of goods in carrying on core activities, goods in relation to which core activities have commenced but not finally been completed or goods resulting from core activities; but does not include the preparation of food or drink (whether for consumption on the premises where it is prepared or elsewhere) in, or in premises occupied in connection with, a hotel, motel, boarding house, catering establishment, restaurant, cafe, milk-bar, coffee shop, retail shop or similar establishment. Guide to Subdivision 43-E INCOME TAX ASSESSMENT ACT 1997 - SECT 43.155 What this Subdivision is about This Subdivision contains special rules about uses of capital works. It is relevant to whether you can get a deduction for capital works and also to the rate of that deduction. The rules in this Subdivision affect the uses of capital works described in Tables 43-90, 43-140 and 43-145. Table of sections Operative provisions 43-160 Your area is used for a purpose if it is maintained ready for use for the purpose 43-165 Temporary cessation of use 43-170 Own use--capital works other than hotel and apartment buildings 43-175 Own use--hotel and apartment buildings 43-180 Special rules for hotel and apartment buildings 43-185 Residential or display use 43-190 Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house 43-195 Use for R&D activities must be in connection with a business Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.160 Your area is used for a purpose if it is maintained ready for use for the purpose A part of * your area is taken to be used, for use or available for use for a particular purpose or in a particular manner at a time if, at that time: (a) it was maintained ready for use for that purpose or in that manner; and (b) it was not used or for use for any other purpose or in any other manner; and (c) its use or intended use for that purpose or in that manner had not been abandoned. Note 1: Construction must be complete before you can deduct an amount, see section 43-30. Note 2: This section affects Tables 43-140 and 43-145. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.165 Temporary cessation of use A part of * your area is taken to be used, for use or available for use for a particular purpose or in a particular manner if its use for that purpose or in that manner temporarily ceases because of: (a) the construction of an extension, alteration or improvement, or the making of repairs; or (b) seasonal or climatic factors. Note: This section affects Tables 43-140 and 43-145. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.170 Own use--capital works other than hotel and apartment buildings (1) A part of capital works, other than a * hotel building or an * apartment building, is taken not to be used for the * purpose of producing assessable income if that part is for use mainly for, or in association with, residential accommodation by you or an * associate. Note: This subsection affects Tables 43-140 and 43-145. (2) Subsection (1) does not apply to use by an * associate under an * arrangement: (a) to which you and the associate are parties; and (b) that is of a kind that the parties could reasonably be expected to have entered into if they had been dealing with each other at arm's length; and (c) that was not entered into for the purpose of obtaining a deduction under this Division. (3) If property that constitutes the whole or part of capital works, other than a * hotel building or an *apartment building, is part of an individual's home, the property is taken to be used, or for use, wholly or mainly for or in association with residential accommodation. Note: This subsection affects Tables 43-90 and 43-140. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.175 Own use--hotel and apartment buildings (1) An entity is taken not to have used a bedroom in a * hotel building, or an apartment, unit or flat in an * apartment building, for the *purpose of producing assessable income at a time if, at that time, the bedroom, apartment, unit or flat is used, or reserved for use, by: (a) the entity; or (b) if the entity is a partnership--any of the partners in the partnership. Note: This subsection affects Tables 43-140 and 43-145. (2) Also, an entity is taken not to use a bedroom in a * hotel building, or an apartment, unit or flat in an * apartment building for any purpose at a time if: (a) at that time, a * right to use or a right to occupy the bedroom, apartment, unit or flat was vested in the entity; and (b) that right was vested in the entity because the entity was, at that time, a member of a company, a beneficiary of a trust estate or a partner in a partnership. Note: This subsection affects Tables 43-90, 43-140 and 43-145. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.180 Special rules for hotel and apartment buildings Rules about counting rooms or apartments etc. (1) A bedroom in a * hotel building, or an apartment, unit or flat in an * apartment building, is taken to be used or available for use wholly for short-term accommodation for travellers in a period if it is used or available for use mainly for short-term accommodation for travellers in that period. Note: This subsection ensures that a limited period of non-short-term traveller accommodation use will be disregarded in counting the number of rooms provided the bedroom, apartment, unit or flat is used mainly for short-term traveller accommodation. (2) For the purpose of counting the number of bedrooms in a * hotel building, if 2 or more rooms that are bedrooms or include a bedroom are for use together as a suite of rooms, the suite is taken to constitute one bedroom. (3) Despite subsection 43-50(3) (which treats you as not being the owner of certain capital works), you can still count an apartment, unit or flat in relation to which CGT event F2 has happened in working out whether you own or lease at least 10 apartments, units or flats in an * apartment building if you own or lease at least one other apartment, unit or flat in the building. Note 1: CGT event F2 results in a lease with a term of 50 years or more being treated for CGT purposes more like an outright disposal. Note 2: Subsection 43-50(3) treats you as not being the owner of capital works that are the subject of such a lease. Rules about hotel or apartment complexes (4) A group of buildings that constitutes a complex of buildings is taken to be one * hotel building or *apartment building, and none of the buildings in the group is taken to be a separate building. (5) The construction of a * hotel building or * apartment building is taken to be an extension of another building if, after completion of the construction, those buildings are taken to be one building under subsection (4). Note: Subsections (4) and (5) ensure that a hotel or apartment building that provides short-term traveller accommodation in detached buildings will be treated as a single building so that the 10 hotel room/apartment test is applied to the complex as a whole. It also has the effect that the complex as a whole must be completed before there can be a construction expenditure area. Rules about facilities not commonly provided in Australia (6) If a * hotel building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be used or for use to operate a hotel, motel or guest house. (7) If an * apartment building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be a facility for use in association with providing short-term accommodation for travellers in apartments, units or flats. Note: Subsections (6) and (7) exclude areas such as casinos from the construction expenditure area of a hotel building or apartment building. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.185 Residential or display use (1) A building, other than a * hotel building or an * apartment building, or an extension, alteration or improvement to such a building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the * purpose of producing assessable income or exempt income if it is used or for use wholly or mainly for exhibition or display in connection with: (a) the sale of all or part of any building; or (b) the lease of all or part of any building for use wholly or mainly for or in association with residential accommodation. Note: Subsection (1) affects time period 2 in Table 43-90 and time period 3 in Table 43-140. (2) A building, other than a * hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the *purpose of producing assessable income if it is used or available for use wholly or mainly for or in association with residential accommodation. Note: Subsection (2) affects time period 2 in Table 43-90 and time period 3 in Table 43-140. (3) A building, other than a * hotel building or an *apartment building, begun after 17 July 1985 and before 1 July 1997 is taken not to be used for the * purpose of producing assessable income if it is used or for use wholly or mainly for exhibition or display in connection with the sale of all or part of any building. Note: Subsection (3) affects time periods 2 and 3 in Table 43-140. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.190 Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house (1) A facility in a * hotel building or an * apartment building that is not commonly provided in a hotel, motel or guest house in Australia is taken not to be used, or for use, for or in association with residential accommodation if the facility is part of a building begun after 19 July 1982 and before 18 July 1985. Note: This subsection means that, for time period 2 in Table 43-90, a facility referred to in subsection 43-180(6) or (7) (dealing with facilities not commonly provided in Australia) is taken to be a non-residential building if it satisfies the use test in Column 3 of that table for a building of that kind, and is therefore eligible for deduction even though it would ordinarily be taken to be used for residential accommodation. (2) A building, other than a * hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 that is used, or for use, wholly or mainly for the purpose of operating a hotel, motel or guest house is taken to be used or for use wholly or mainly for, or in association with, residential accommodation. Note: This subsection ensures that hotels, motels and guest houses begun in the specified time period that do not satisfy the tests for hotel and apartment buildings (for example, because they had fewer than 10 bedrooms or apartments) do not qualify for a deduction under this Division. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.195 Use for R&D activities must be in connection with a business You are taken not to use capital works for * R&D activities unless you do so in connection with a business that you carry on for the * purpose of producing assessable income. Note: This section affects Tables 43-90 and 43-140. Guide to Subdivision 43-F INCOME TAX ASSESSMENT ACT 1997 - SECT 43.200 What this Subdivision is about This Subdivision shows you how to calculate the amount of a deduction under section 43-10. The calculations must be made separately for each area that is identified as your area. There are 2 separate calculation provisions: One for capital works begun before 27 February 1992; and the other for capital works begun after 26 February 1992. Table of sections 43-205 Explanatory material Operative provisions 43-210 Deduction for capital works begun after 26 February 1992 43-215 Deduction for capital works begun before 27 February 1992 43-220 Capital works taken to have begun earlier for certain purposes INCOME TAX ASSESSMENT ACT 1997 - SECT 43.205 Explanatory material Capital works begun before 27 February 1992 The calculation for these works is based on * your construction expenditure and the applicable rate of deduction. There can be only one rate of deduction that applies to * your area. However, reductions of deductions may apply. You must reduce your deduction for any period in the income year that you did not own * your area and use it in the way described in Table 43-140 (Current year use). Because there are 2 use tests in Table 43-140 for * hotel buildings and * apartment buildings (a general income producing test and a more specific hotel and short-term traveller accommodation use test), there are 2 reduction steps. The first step reduces your deduction if part of * your area was not used as a * hotel building or *apartment building. The second step reduces the deduction to the extent that your area is used only partly for the * purpose of producing assessable income. This occurs, for example, if you * derive both assessable and exempt income, or if part of your area is not used to produce assessable income for all or part of the period it was used as a hotel building or apartment building. Capital works begun after 26 February 1992 The calculation for these works is based on a portion of * your construction expenditure and the applicable rate of deduction. There can be 2 rates of deduction for your area depending on the way you use it. If 2 rates apply, there will be a separate calculation for the part of * your area used in the way described in Table 43-140 and for the part of * your area used in the way described in Table 43-145 (Use in the 4% manner). A gross deduction and subsequent reduction is calculated for each. The reduction is the same as the second reduction for capital works begun before 27 February 1992. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.210 Deduction for capital works begun after 26 February 1992 Step 1 Calculate the amount worked out using the formula: where: "portion of your CE" is the portion of * your construction expenditure that is attributable to the part of *your area that you used in the *4% manner. "days used" is the number of days in the income year that: (a) you owned or were the lessee of that part of * your area and used it in the * 4% manner; or (b) you were the holder of that part of * your area under a * quasi-ownership right over land granted by an * exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in the 4% manner. Step 2 Reduce the Step 1 amount by the extent to which the part referred to in Step 1 was used only partly for the * purpose of producing assessable income. Note: This Step applies if: * part of your income from the part referred to in Step 1 is exempt income; or * part of the part referred to in Step 1 was not used for the purpose of producing assessable income or was not available for that use; or * the part of the part referred to in Step 1 was not used for such a purpose during a part of the days used period. Step 3 Calculate the amount worked out using the formula: where: "portion of your CE" is the portion of * your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner but was used as described in Table 43-140 (Current year use). "days used" is the number of days in the income year that: (a) you owned or were the lessee of that part of * your area and used it in that manner; or (b) you were the holder of that part of * your area under a * quasi-ownership right over land granted by an * exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in that manner. Step 4 Reduce the Step 3 amount by the extent to which the part referred to in Step 3: (a) for a * hotel building or *apartment building--was used only partly for the * purpose of producing assessable income; or (b) for any other capital works--was used only partly for the purpose of * producing assessable income or conducting * R&D activities. Note: This Step applies if: * part of your income from the part referred to in Step 3 is exempt income; or * part of the part referred to in Step 3 was not used for the purpose of producing assessable income (or R&D activities) or was not available for that use; or * the part of the part referred to in Step 3 was not used for such a purpose during a part of the days used period. Step 5 Add the Step 2 and Step 4 amounts. Step 6 The amount of your deduction is the lesser of your Step 5 amount or the * undeducted construction expenditure for *your area. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.215 Deduction for capital works begun before 27 February 1992 Step 1 Calculate the amount worked out using the formula: where: "your CE" is * your construction expenditure. "days used" is the number of days in the income year that you owned or were the lessee of * your area and used it in the way that applies to the capital works under Table 43-140 (Current year use). "applicable rate" is: (a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or (b) 0.025 in any other case. Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Step 2 This step applies only to * hotel buildings and * apartment buildings. Reduce the Step 1 amount by the extent to which: (a) for a hotel building--any part of * your area was not used wholly or mainly to operate a hotel, motel or guest house; or (b) for an apartment building--any part of * your area was not used wholly for or in association with providing short-term accommodation for travellers. Step 3 Reduce the Step 1 or 2 amount by the extent to which: (a) for a * hotel building or *apartment building--*your area was used only partly for the * purpose of producing assessable income; or (b) for any other capital works--* your area was used only partly for the * purpose of producing assessable income or conducting * R&D activities. Note: This Step applies if: * part of your income from the capital works is exempt income; or * part of the capital works were not used for the purpose of producing assessable income or were not available for that use; or * the capital works were not used for such a purpose during a part of the days used period. Step 4 The amount of your deduction is the lesser of your Step 3 amount or the * undeducted construction expenditure for *your area. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.220 Capital works taken to have begun earlier for certain purposes (1) A building, other than a * hotel building or an * apartment building, or an extension, alteration or improvement to such a building, begun after 15 September 1987 is taken to have begun before 16 September 1987 if: (a) the construction was under a contract that was entered into before 16 September 1987, or was under 2 or more contracts any of which was entered into before that date; or (b) money was borrowed for a purpose that included the purpose of financing the construction under a contract or contracts entered into before 16 September 1987 by an entity that was, or by entities each of which was, a * qualifying investor, and that money was used to finance the construction. (2) An entity is a qualifying investor for the construction of a building if: (a) at the end of 15 September 1987, the entity was the owner or lessee of the land on which the building was constructed; or (b) the entity became the owner or lessee of the land under a contract entered into before 16 September 1987. (3) An entity is a qualifying investor for the construction of an extension, alteration or improvement to a building if: (a) at the end of 15 September 1987, the entity was the owner or lessee of the building, or the part of the building to which the extension, alteration or improvement was made; or (b) the entity became the owner or lessee of the building or that part under a contract entered into before 16 September 1987. Guide to Subdivision 43-G INCOME TAX ASSESSMENT ACT 1997 - SECT 43.225 What this Subdivision is about The undeducted construction expenditure for your area is the part of your construction expenditure you have left to write off. It is used to work out: • the number of years in which you can deduct amounts for your construction expenditure; and • the amount that you can deduct under section 43-40 if your area or a part is destroyed. Table of sections Operative provisions 43-230 Calculating undeducted construction expenditure--common step 43-235 Post-26 February 1992 undeducted construction expenditure 43-240 Pre-27 February 1992 undeducted construction expenditure Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.230 Calculating undeducted construction expenditure--common step (1) Identify the date when the capital works began. Note 1: The date determines whether your calculation is to be made under section 43-235 (for post-26/2/92 expenditure) or 43-240 (for pre-27/2/92 expenditure). Note 2: Section 43-80 explains when capital works begin. (2) If you are calculating a deduction under Subdivision 43-F, identify the period (use period) that: (a) started when * your area, or a part of it, was first used by any entity for any purpose after completion of the relevant construction; and (b) ended at the end of the preceding income year or, if you acquired your area during the income year, at the end of the day before the time of the acquisition. (3) If you are calculating a deduction under Subdivision 43-H, identify the period (use period) that started at the time described in paragraph (2)(a) and ended at the time of the destruction. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.235 Post-26 February 1992 undeducted construction expenditure Step 1 Calculate for each day in the use period the amount worked out using the formula: where: "portion of your CE" is the portion of * your construction expenditure that is attributable to the part of *your area that you used in the *4% manner. Step 2 Calculate for each day in the use period the amount worked out using the formula: where: "portion of your CE" is the portion of * your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner. Step 3 Add the aggregate of the amounts calculated under Steps 1 and 2. Step 4 Deduct the sum of those amounts from * your construction expenditure. The result is the undeducted construction expenditure for * your area. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.240 Pre-27 February 1992 undeducted construction expenditure Step 1 Calculate for each day in the use period the amount worked out using the formula: where: "your CE" is * your construction expenditure. "applicable rate" is: (a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or (b) 0.025 in any other case. Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Step 2 Deduct the sum of the amounts calculated under Step 1 from * your construction expenditure. The result is the undeducted construction expenditure for * your area. Guide to Subdivision 43-H INCOME TAX ASSESSMENT ACT 1997 - SECT 43.245 What this Subdivision is about You may deduct an amount for the undeducted construction expenditure for your area if your area or part of it is destroyed in the circumstances described in section 43-40. This Subdivision shows you how to work out that deduction. The calculations in this Subdivision are made separately for each part of the capital works that is identified as your area. Table of sections Operative provisions 43-250 The amount of the balancing deduction 43-255 Amounts received or receivable 43-260 Apportioning amounts received for destruction Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 43.250 The amount of the balancing deduction Method statement Step 1. Calculate the amount (if any) by which the * undeducted construction expenditure for the part of * your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part. Step 2. Reduce the amount at Step 1 if one or more of these happened to that part of * your area: (a) Step 2 or 4 in section 43-210, or Step 2 or 3 in section 43-215, applied to you or another person for it; (b) you were, or another person was, not allowed a deduction for it under this Division; (c) a deduction for it was not allowed or was reduced (for you or another person) under former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936. The reduction under this step must be reasonable. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.255 Amounts received or receivable The amounts you have received or have a right to receive for the destruction of that part of * your area include: (a) an amount received under an insurance policy or otherwise for the destruction of that part; and (b) an amount received for disposing of property that was included in that part of your area, less any demolition expenditure incurred on the property. INCOME TAX ASSESSMENT ACT 1997 - SECT 43.260 Apportioning amounts received for destruction If an amount received or receivable in respect of the destruction of property relates to both the part of * your area for which you are claiming the balancing deduction and to property: (a) the cost of which did not form part of * your construction expenditure; or (b) that is capital works that was not part of your area; you must apportion the amount received or receivable to the amount that is attributable to the part of your area that was destroyed. The apportionment must be reasonable. Guide to Division 45 INCOME TAX ASSESSMENT ACT 1997 - SECT 45.1 What this Division is about This Division is designed to prevent tax being avoided through: (a) the disposal of leased plant, or an interest in leased plant; or (b) the disposal of a partnership interest in a partnership that leased plant; or (c) the disposal of shares in a 100% subsidiary that leased plant; where amounts have been deducted for the decline in value of the plant. It includes amounts in assessable income. Any benefit received, and any reduction in a liability, is taken into account in calculating the amounts included. Where the disposal of shares in a 100% subsidiary is involved, the companies in the former wholly-owned group may be made jointly and severally liable for tax that the former subsidiary does not pay. Table of sections Operative provisions 45-5 Disposal of leased plant or lease 45-10 Disposal of interest in partnership 45-15 Disposal of shares in 100% subsidiary that leases plant 45-20 Disposal of shares in 100% subsidiary that leases plant in partnership 45-25 Group members liable to pay outstanding tax 45-30 Reduction for certain plant acquired before 21.9.99 45-35 Limit on amount included for plant for which there is a CGT exemption 45-40 Meaning of plant and written down value Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 45.5 Disposal of leased plant or lease (1) An amount is included in your assessable income if: (a) you have deducted or can deduct an amount for the decline in value of * plant; and (b) for most of the time when you * held the plant, you leased it to another entity; and (c) all or part of the lease period occurred on or after 22 February 1999; and (d) on or after that day, you dispose of the plant or an interest in the plant, and that disposal constitutes a * balancing adjustment event; and (e) the sum of the following amounts is more than the plant's * written down value or of that part of it that is attributable to that interest: (i) the money you receive or are entitled to receive for the disposal; (ii) the amount of any reduction in a liability of yours as a result of the disposal; (iii) the * market value of any other benefit you receive or are entitled to receive as a result of the disposal. (2) The amount included is the excess referred to in paragraph (1)(e). It is included for the income year in which the disposal occurred. Example: Sean owns a leased asset. The asset has a written down value of $20,000. He has an outstanding loan for the asset of $60,000. Sean sells a 50% interest in the asset to Leprechaun Pty Ltd for $40,000. Leprechaun agrees to take over 50% of Sean's obligation to make debt service payments. The excess referred to in paragraph 45-5(1)(e) is: That amount is included in Sean's assessable income. This amount would be reduced if part of it is included in Sean's assessable income under another provision (see subsection 45-5(5)). Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45-30. Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45-35. (3) An amount is also included in your assessable income if: (a) you have deducted or can deduct an amount for the * plant's decline in value; and (b) for most of the time when you * held the plant, you leased it to another entity; and (c) all or part of the lease period occurred on or after 22 February 1999; and (d) on or after that day, you dispose of: (i) your interest in the plant, or part of it; or (ii) a right under, or an interest in, the lease; and that disposal does not constitute a * balancing adjustment event. (4) The amount included is the sum of the following amounts: (a) the money you receive or are entitled to receive for the disposal; (b) the amount of any reduction in a liability of yours as a result of the disposal; (c) the * market value of any other benefit you receive or are entitled to receive as a result of the disposal; It is included for the income year in which the disposal occurred. (5) However, an amount is not included in your assessable income under this section to the extent that: (a) it is included in that assessable income under a provision of this Act outside this Division; or (b) you apply it under section 40-365 (about offsetting balancing adjustments); or (c) roll-over relief is available for the disposal under section 40-340. Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.10 Disposal of interest in partnership (1) An amount is included in your assessable income if: (a) a partnership of which you are (or were) a member has deducted or can deduct an amount for the decline in value of * plant; and (b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and (c) for most of the time when the partnership * held the plant, it leased it to another entity; and (d) all or part of the lease period occurred on or after 22 February 1999; and (e) on or after that day, you dispose of your interest in the plant, or part of it, and that disposal constitutes a * balancing adjustment event; and (f) the sum of the following amounts is more than that part of the plant's * written down value that is attributable to that interest: (i) the money you receive or are entitled to receive for the disposal; (ii) the amount of any reduction in a liability of yours as a result of the disposal; (iii) the * market value of any other benefit you receive or are entitled to receive as a result of the disposal. (2) The amount included is the excess referred to in paragraph (1)(f). It is included for the income year in which the disposal occurred. Example: Chris has a 50% share in a partnership formed to lease an asset. The asset has a written down value of $124,000 (of which Chris' share is $62,000). Chris assigns his partnership share to another entity for $34,000 plus the other entity agreeing to take over Chris' obligations to service his share of the partnership debt (which is $165,000). The total consideration is: The amount assessable under section 45-10 is the excess referred to in paragraph 45-10(1)(f), which is: This amount would be reduced if part of it is included in Chris' assessable income under another provision (see subsection 45-10(5)). Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45-30. Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45-35. (3) An amount is also included in your assessable income if: (a) a partnership of which you are (or were) a member has deducted or can deduct an amount for the decline in value of * plant; and (b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and (c) for most of the time when the partnership * held the plant, it leased it to another entity; and (d) all or part of the lease period occurred on or after 22 February 1999; and (e) on or after that day, you dispose of: (i) your interest in the plant, or part of it; or (ii) a right under, or an interest in, the lease; and that disposal does not constitute a * balancing adjustment event. (4) The amount included is the sum of the following amounts: (a) the money you receive or are entitled to receive for the disposal; (b) the amount of any reduction in a liability of yours as a result of the disposal; (c) the * market value of any other benefit you receive or are entitled to receive as a result of the disposal. It is included for the income year in which the disposal occurred. (5) However, an amount is not included in your assessable income under this section to the extent that: (a) it is included in that assessable income under a provision of this Act outside this Division; or (b) you apply it under section 40-365 (about offsetting balancing adjustments). Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.15 Disposal of shares in 100% subsidiary that leases plant (1) A company (the former subsidiary) is treated as if it had disposed of * plant, received its *market value for that disposal and immediately reacquired it for the same amount if: (a) the former subsidiary has deducted or can deduct an amount for the decline in value of the plant; and (b) the former subsidiary was a * 100% subsidiary of another company in a * wholly-owned group at a time when it * held the plant; and (c) for most of the time when the former subsidiary held the plant, the plant was leased to another entity; and (d) the main * business of the former subsidiary was to lease assets; and (e) all or part of the lease period occurred on or after 22 February 1999; and (f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the * shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly-owned group; and (g) the plant's * written down value at the time of that acquisition is less than its market value at that time. (2) However, the former subsidiary is not treated as if it had disposed of * plant and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of * shares in the former subsidiary is the same as the main business of the * wholly-owned group of which the former subsidiary was a member. (3) The disposal and reacquisition of the * plant: (a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and (b) is taken not to have affected any lease of the plant. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.20 Disposal of shares in 100% subsidiary that leases plant in partnership (1) A company (also the former subsidiary) is treated as if it had disposed of its interest in * plant, received its * market value for that disposal and immediately reacquired it for the same amount if: (a) a partnership of which the former subsidiary is (or was) a member has deducted or can deduct an amount for the decline in value of the plant; and (b) the former subsidiary was a * 100% subsidiary of another company in a * wholly-owned group at a time when: (i) it was a member of that partnership; and (ii) the partnership * held the plant; and (c) for most of the time when the partnership held the plant, the plant was leased to another entity; and (d) the main * business of the partnership was to lease assets; and (e) all or part of the lease period occurred on or after 22 February 1999; and (f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the * shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly-owned group; and (g) the plant's * written down value at the time of that acquisition is less than its market value at that time. (2) However, the former subsidiary is not treated as if it had disposed of the interest and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of * shares in the former subsidiary is the same as the main business of the * wholly-owned group of which the former subsidiary was a member. (3) The disposal and reacquisition of the interest: (a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and (b) is taken not to have affected any lease of the plant. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.25 Group members liable to pay outstanding tax (1) The consequences specified in subsection (2) apply if: (a) an amount is included in the former subsidiary's assessable income for an income year because of section 45-15 or 45-20; and (b) the former subsidiary is liable to pay an amount of income tax for that income year; and (c) the former subsidiary does not pay all of that income tax within 6 months after it became payable. (2) The consequences are that: (a) the former subsidiary remains liable to pay the outstanding amount of income tax (reduced by any payments of tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999); and (b) each company that was, just before the time when the direct or indirect beneficial ownership referred to in paragraph 45-15(1)(f) or 45-20(1)(f) was acquired, a member of the former subsidiary's former * wholly-owned group, is jointly and severally liable to pay tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.30 Reduction for certain plant acquired before 21.9.99 (1) The amount included in your assessable income under subsection 45-5(2) or 45-10(2) is reduced if: (a) you acquired the * plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and you disposed of the plant or an interest in it after that time; and (b) the sum of the amounts (your proceeds) referred to in paragraph 45-5(1)(e) or 45-10(1)(f) is more than the plant's * cost, or that part of it that is attributable to the interest you disposed of. (2) The amount included is reduced by the lesser of: (a) the amount (if any) by which the * plant's *cost base exceeds its * cost, or that part of the excess that is attributable to the interest you disposed of; and (b) the difference between your proceeds and the plant's cost, or that part of its cost that is attributable to the interest you disposed of. (3) However, the amount is not reduced under this section if: (a) the * plant was a *pre-CGT asset at the time of the *balancing adjustment event; or (b) a * capital gain or *capital loss from the plant or interest would be disregarded because of a provision listed in the table in this subsection if: (i) you had made the gain or loss from * CGT event A1; and (ii) that CGT event had happened at the time of the balancing adjustment event. Plant for which a reduction is not made under this section Item Provision Subject matter 1 section 118-5 cars, motor cycles and valour decorations 2 section 118-10 collectables and personal use assets 3 section 118-12 plant used to produce exempt income INCOME TAX ASSESSMENT ACT 1997 - SECT 45.35 Limit on amount included for plant for which there is a CGT exemption (1) For * plant to which subsection 45-30(3) applies there is a limit on the amount that can be included in your assessable income under subsection 45-5(2) or 45-10(2). (2) The limit for subsection 45-5(2) is the lesser of: (a) the excess referred to in paragraph 45-5(1)(e); and (b) the amounts you have deducted or can deduct for the decline in value of the * plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest. (3) The limit for subsection 45-10(2) is the lesser of: (a) the excess referred to in paragraph 45-10(1)(f); and (b) that part of the amounts the partnership has deducted or can deduct for the decline in value of the * plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest. INCOME TAX ASSESSMENT ACT 1997 - SECT 45.40 Meaning of plant and written down value (1) Plant includes: (a) articles, machinery, tools and rolling stock; and (b) animals used as beasts of burden or working beasts in a * business, other than a *primary production business; and (c) fences, dams and other structural improvements, other than those used for domestic or residential purposes, on land that is used for agricultural or pastoral operations; and (d) structural improvements, other than a * forestry road or structural improvements used for domestic or residential purposes, on land used in a business involving: (i) planting or tending trees in a plantation or forest that are intended to be felled; or (ii) felling trees in a plantation or forest; or (iii) transporting trees, or parts of trees, that you felled in a plantation or forest to the place where they are first to be milled or processed, or from which they are to be transported to the place where they are first to be milled or processed; and (e) structural improvements, other than those used for domestic or residential purposes, that are used wholly for operations (carried out in the course of a business) relating directly to: (i) taking or culturing pearls or pearl shell; or (ii) taking or catching trochus, bêche-de-mer or green snails; and that are situated at or near a port or harbour from which the business is conducted; and (f) structural improvements that are excluded from paragraph (c), (d) or (e) because they are used for domestic or residential purposes if they are provided for the accommodation of employees, tenants or sharefarmers who are engaged in or in connection with the activities referred to in that paragraph. (2) Plant also includes plumbing fixtures and fittings (including wall and floor tiles) provided by an entity mainly for: (a) either or both: (i) employees in a * business carried on by the entity for the * purpose of producing assessable income; or (ii) employees in a business carried on for that purpose by a company that is a member of the same * wholly-owned group of which the entity is a member; or (b) * children of any of those employees. (3) The written down value of a * depreciating asset is its * cost less the sum of: (a) the amounts you have deducted or can deduct for its decline in value; and (b) if section 40-340 applied to your acquisition of it--the amounts the transferor, and earlier successive transferors, deducted or can deduct for its decline in value. Table of Subdivisions 50-A Various exempt entities 50-B Endorsing charitable entities as exempt from income tax Table of sections 50-1 Entities whose ordinary income and statutory income is exempt 50-5 Charity, education, science and religion 50-10 Community service 50-15 Employees and employers 50-20 Funds contributing to other funds 50-25 Government 50-30 Health 50-35 Mining 50-40 Primary and secondary resources, and tourism 50-45 Sports, culture and recreation 50-50 Special conditions for items 1.1 and 1.2 50-52 Special condition for items 1.1, 1.5, 1.5A, 1.5B and 4.1 50-55 Special conditions for items 1.3, 1.4, 6.1 and 6.2 50-57 Special condition for item 1.5 50-60 Special conditions for items 1.5A and 1.5B 50-65 Special conditions for item 1.6 50-70 Special conditions for items 1.7, 2.1, 9.1 and 9.2 50-72 Special condition for item 4.1 50-75 Certain distributions may be made overseas 50-80 Testamentary trusts may be treated as 2 trusts INCOME TAX ASSESSMENT ACT 1997 - SECT 50.1 Entities whose ordinary income and statutory income is exempt The total * ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions. Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income. Note 2: Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.5 Charity, education, science and religion Charity, education, science and religion Item Exempt entity Special conditions 1.1 charitable institution see sections 50-50 and 50-52 1.2 religious institution see section 50-50 1.3 scientific institution see section 50-55 1.4 public educational institution see section 50-55 1.5 fund established for public charitable purposes by will before 1 July 1997 see sections 50-52 and 50-57 1.5A trust covered by paragraph 50-80(1)(c) see sections 50-52 and 50-60 1.5B fund established in Australia for public charitable purposes by will or instrument of trust (and not covered by item 1.5 or 1.5A) see sections 50-52 and 50-60 1.6 fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital see section 50-65 1.7 society, association or club established for the encouragement of science see section 50-70 1.8 Global Carbon Capture and Storage Institute Ltd only amounts included in assessable income: (a) on or after 1 July 2009; and (b) before 1 July 2013 Note 1: Section 50-52 has the effect that certain charitable institutions, funds and trusts are exempt from income tax only if they are endorsed under Subdivision 50-B. Note 2: Section 50-80 may affect which item a trust is covered by. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.10 Community service Community service Item Exempt entity Special conditions 2.1 society, association or club established for community service purposes (except political or lobbying purposes) see section 50-70 INCOME TAX ASSESSMENT ACT 1997 - SECT 50.15 Employees and employers Employees and employers Item Exempt entity Special conditions 3.1 (a) employee association; or (b) employer association the association: (a) is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an * Australian law relating to the settlement of industrial disputes; and (b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia 3.2 trade union located in Australia and incurring its expenditure and pursuing its objectives principally in Australia INCOME TAX ASSESSMENT ACT 1997 - SECT 50.20 Funds contributing to other funds Funds contributing to other funds Item Exempt entity Special conditions 4.1 fund established by will or instrument of trust solely for a purpose referred to in paragraph (a) or (b) of the column headed "Recipient" in item 2 of the table in section 30-15 (and not covered by item 1.5, 1.5A or 1.5B of the table in section 50-5) see sections 50-52 and 50-72 INCOME TAX ASSESSMENT ACT 1997 - SECT 50.25 Government Government Item Exempt entity Special conditions 5.1 (a) a municipal corporation; or (b) a * local governing body none 5.2 a public authority constituted under an * Australian law none 5.3 a * constitutionally protected fund none Note: The ordinary and statutory income of a State or Territory body is exempt: see Division 1AB of Part III of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.30 Health Health Item Exempt entity Special conditions 6.1 public hospital see section 50-55 6.2 hospital carried on by a society or association not carried on for the profit or gain of its individual members, see also section 50-55 6.3 private health insurer within the meaning of the Private Health Insurance Act 2007 not carried on for the profit or gain of its individual members INCOME TAX ASSESSMENT ACT 1997 - SECT 50.35 Mining Mining Item Exempt entity Special conditions 7.2 the British Phosphate Commissioners Banaba Contingency Fund (established on 1 June 1981) none INCOME TAX ASSESSMENT ACT 1997 - SECT 50.40 Primary and secondary resources, and tourism Primary and secondary resources, and tourism Item Exempt entity Special conditions 8.1 a society or association established for the purpose of promoting the development of: (a) aviation; or (b) tourism not carried on for the profit or gain of its individual members 8.2 a society or association established for the purpose of promoting the development of any of the following Australian resources: (a) agricultural resources; (b) horticultural resources; (c) industrial resources; (d) manufacturing resources; (e) pastoral resources; (f) viticultural resources; (g) aquacultural resources; (h) fishing resources not carried on for the profit or gain of its individual members 8.3 a society or association established for the purpose of promoting the development of Australian information and communications technology resources not carried on for the profit or gain of its individual members INCOME TAX ASSESSMENT ACT 1997 - SECT 50.45 Sports, culture and recreation Sports, culture, film and recreation Item Exempt entity Special conditions 9.1 a society, association or club established for the encouragement of: (a) animal racing; or (b) art; or (c) a game or sport; or (d) literature; or (e) music see section 50-70 9.2 a society, association or club established for musical purposes see section 50-70 INCOME TAX ASSESSMENT ACT 1997 - SECT 50.50 Special conditions for items 1.1 and 1.2 An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or (d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia. Note 1: Certain distributions may be disregarded: see section 50-75. Note 2: The entity must also meet other conditions to be exempt from income tax: see section 50-52. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.52 Special condition for items 1.1, 1.5, 1.5A, 1.5B and 4.1 (1) An entity covered by item 1.1, 1.5, 1.5A, 1.5B or 4.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B. Note: The entity will not be exempt from income tax unless it also meets other conditions: see section 50-50 (for an entity covered by item 1.1), 50-57 (for an entity covered by item 1.5), 50-60 (for an entity covered by item 1.5A or 1.5B) or section 50-72 (for an entity covered by item 4.1). (3) This section has effect despite all the other sections of this Subdivision. Note: This means that an entity covered both by an item other than 1.1, 1.5, 1.5A, 1.5B or 4.1 and by one of those items is not exempt from income tax unless the entity is endorsed under Subdivision 50-B as exempt from income tax and the entity meets the requirements of whichever of sections 50-50, 50-57, 50-60 and 50-72 is relevant. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.55 Special conditions for items 1.3, 1.4, 6.1 and 6.2 An entity covered by item 1.3, 1.4, 6.1 or 6.2 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident. Note: Certain distributions may be disregarded: see section 50-75. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.57 Special condition for item 1.5 A fund covered by item 1.5 is not exempt from income tax unless the fund is applied for the purpose for which it was established. Note: The fund must also meet another condition to be exempt from income tax: see section 50-52. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.60 Special conditions for items 1.5A and 1.5B A fund covered by item 1.5A or 1.5B is not exempt from income tax unless the fund is applied for the purposes for which it was established and: (a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997 pursued, its charitable purposes solely in Australia; or (b) is a fund which is referred to in a table in Subdivision 30-B or in item 2 of the table in section 30-15; or (c) distributes solely, and has at all times since 1 July 1997 distributed solely, to either or both of the following: (i) a charitable fund, foundation or institution which, to the best of the trustee's knowledge, is located in Australia and incurs its expenditure principally in Australia and pursues its charitable purposes solely in Australia; (ii) a charitable fund, foundation or institution that, to the best of the trustee's knowledge, meets the description and requirements in item 1 or 2 of the table in section 30-15. Note 1: Certain distributions may be disregarded: see section 50-75. Note 2: The fund must also meet other conditions to be exempt from income tax: see section 50-52. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.65 Special conditions for item 1.6 A fund covered by item 1.6 is not exempt from tax unless the fund is applied for the purposes for which it was established and is: (a) a fund that is located in, and which incurs its expenditure principally in, Australia and that is established for the purpose of enabling scientific research to be conducted principally in Australia by or in conjunction with a public university or public hospital; or (b) a scientific research fund that meets the description and requirements in item 1 or 2 of the table in section 30-15. Note: Certain distributions may be disregarded: see section 50-75. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.70 Special conditions for items 1.7, 2.1, 9.1 and 9.2 An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. Note: Certain distributions may be disregarded: see section 50-75. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.72 Special condition for item 4.1 (1) A fund covered by item 4.1 is not exempt from income tax unless the fund: (a) is applied for the purposes for which it is established; and (b) distributes solely, and has at all times since the time mentioned in subsection (2) distributed solely, to a fund, authority or institution that: (i) meets the description and requirements in item 1 of the table in section 30-15; and (ii) is an * exempt entity. (2) The time is the start of the income year after the income year in which the Tax Laws Amendment (2005 Measures No. 3) Act 2005 receives the Royal Assent. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.75 Certain distributions may be made overseas (1) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount received by the institution, fund or other body as a gift (whether of money or other property) or by way of government grant are to be disregarded. (2) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount from a fund that is referred to in a table in Subdivision 30-B and operated by the institution, fund or other body are to be disregarded. (3) In determining for the purposes of section 50-60 whether a fund: (a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997, pursued its charitable purposes solely in Australia; or (b) distributes solely, and has at all times since 1 July 1997 distributed solely, to a charitable fund, foundation or institution described in subparagraph 50-60(c)(i) or (ii); distributions of any amount received by the fund as a gift (whether of money or property) or by way of government grant are to be disregarded. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.80 Testamentary trusts may be treated as 2 trusts (1) If: (a) a trust (the existing trust) covered by item 1.5 was in existence immediately before 1 July 1997; and (b) on or after 1 July 1997 one or more assets are given to the existing trust (other than in return for valuable consideration) or become part of the trust property under a will; then, for the purposes of this Subdivision and Subdivision 50-B, the existing trust is taken to be 2 separate trusts (the new trust and the old trust) as follows: (c) the new trust is taken to be a trust created after the start of 1 July 1997 that consists of so much of the trust property as consists of those assets together with any income * derived from those assets; and (d) the old trust is taken to be a trust created before 1 July 1997 that consists of the remainder of the trust property. (2) Where an asset is received in substitution for another asset, subsection (1) applies as if the substituted asset were the other asset. Guide to Subdivision 50-B INCOME TAX ASSESSMENT ACT 1997 - SECT 50.100 What this Subdivision is about This Subdivision sets out rules about endorsement of charitable institutions and trust funds for charitable purposes as exempt from income tax. Such entities are only exempt from income tax if they are endorsed. Table of sections Endorsing charitable entities as exempt from income tax 50-105 Endorsement by Commissioner 50-110 Entitlement to endorsement Endorsing charitable entities as exempt from income tax INCOME TAX ASSESSMENT ACT 1997 - SECT 50.105 Endorsement by Commissioner The Commissioner must endorse an entity as exempt from income tax if the entity: (a) is entitled to be endorsed as exempt from income tax; and (b) has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953. Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953. INCOME TAX ASSESSMENT ACT 1997 - SECT 50.110 Entitlement to endorsement General rule (1) An entity is entitled to be endorsed as exempt from income tax if the entity meets all the relevant requirements of this section. Which entities are entitled to be endorsed? (2) To be entitled, the entity must be an entity covered by item 1.1, 1.5, 1.5A or 1.5B of the table in section 50-5 or item 4.1 of the table in section 50-20. Requirement for ABN (3) To be entitled, the entity must have an * ABN. (4) However, for a trust: (a) covered by item 1.5 of the table in section 50-5 because the trust is covered by paragraph 50-80(1)(d); or (b) covered by item 1.5A of the table in section 50-5 (because the trust is covered by paragraph 50-80(1)(c)); to be entitled, the existing trust mentioned in paragraph 50-80(1)(a) must have an * ABN. Requirement to meet special conditions (5) To be entitled: (a) the entity must meet the relevant conditions referred to in the column headed "Special conditions" of whichever of items 1.1, 1.5, 1.5A and 1.5B of the table in section 50-5 and item 4.1 of the table in section 50-20 covers the entity; or (b) both of the following conditions must be met: (i) the entity must not have carried on any activities as a charitable institution (if the entity is covered by item 1.1 of the table in section 50-5) or for public charitable purposes (if the entity is covered by item 1.5, 1.5A or 1.5B of that table); (ii) there must be reasonable grounds for believing that the entity will meet the relevant conditions referred to in the column headed "Special conditions" of whichever of items 1.1, 1.5, 1.5A or 1.5B of the table in section 50-5 covers the entity; or (c) if the entity is covered by item 4.1 of the table in section 50-20 and has not made any distributions--there must be reasonable grounds for believing that the entity will satisfy section 50-72. (6) To avoid doubt, the condition set out in section 50-52 (requiring the entity to be endorsed under this Subdivision) is not a relevant condition for the purposes of subsection (5). Table of sections 51-1 Amounts of ordinary income and statutory income that are exempt 51-5 Defence 51-10 Education and training 51-30 Welfare 51-32 Compensation payments for loss of deployment allowance for warlike service 51-33 Compensation payments for loss of pay and/or allowances as a Defence reservist 51-35 Payments to a full-time student at a school, college or university 51-40 Payments to a secondary student 51-42 Bonuses for early completion of an apprenticeship 51-43 Income collected or derived by copyright collecting society 51-45 Income collected or derived by resale royalty collecting society 51-50 Maintenance payments to a spouse or child 51-52 Income derived from eligible venture capital investments by ESVCLPs 51-54 Gain or profit from disposal of eligible venture capital investments 51-55 Gain or profit from disposal of venture capital equity 51-57 Interest on judgment debt relating to personal injury 51-60 Prime Minister's Prizes INCOME TAX ASSESSMENT ACT 1997 - SECT 51.1 Amounts of ordinary income and statutory income that are exempt The amounts of * ordinary income and * statutory income covered by the following tables are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both. Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income. Note 2: Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.5 Defence Defence Item If you are: ... the following amounts are exempt from income tax: ... subject to these exceptions and special conditions: 1.1 a member of the Defence Force (a) payments of allowances or bounty of a kind prescribed in the regulations; and (b) the * market value of rations and quarters supplied to you without charge none 1.1A a member of the Defence Force compensation payments for loss of deployment allowance for warlike service see section 51-32 1.2 a recipient of a payment in respect of a member of the Defence Force payments of allowances or bounty of a kind prescribed in the regulations none 1.4 a member of: (a) the Naval Reserve; or (b) the Army Reserve; or (c) the Air Force Reserve pay and allowances as a member except pay and allowances for continuous full time service 1.5 a former member of: (a) the Naval Reserve; or (b) the Army Reserve; or (c) the Air Force Reserve compensation payments for loss of pay and/or allowances as a member see section 51-33 1.6 a recipient of an ex-gratia payment from the Commonwealth known as the F-111 Deseal/Reseal Ex-gratia Lump Sum Payment the ex-gratia payment none INCOME TAX ASSESSMENT ACT 1997 - SECT 51.10 Education and training Education and training Item If you are: ... the following amounts are exempt from income tax: ... subject to these exceptions and special conditions: 2.1A a full-time student at a school, college or university a scholarship, bursary, educational allowance or educational assistance see section 51-35 2.1B (a) a student; or (b) a recipient of a payment in respect of a student a payment under a Commonwealth scheme for assistance of: (a) secondary education; or (b) the education of isolated children see section 51-40 2.1 a recipient of a grant made by the Australian-American Educational Foundation the grant the grant is from funds made available to the Foundation under the agreement establishing it 2.2 an employer payments under the CRAFT Scheme (the Commonwealth Rebate for Apprentice Full-Time Training Scheme) each payment is for an apprentice who most recently started work with you before 1 January 1998 2.3 a recipient of a scholarship known as a Commonwealth Trade Learning Scholarship the scholarship none 2.4 a recipient of a payment known as the Apprenticeship Wage Top-Up the payment none 2.5 a recipient of: (a) a research fellowship under the Endeavour Awards; or (b) an Endeavour Executive Award the fellowship or award none 2.6 a recipient of a bonus for early completion of an apprenticeship so much of the bonus as does not exceed $1,000 see section 51-42 2.7 a recipient of a payment under the program known as Skills for Sustainability for Australian Apprentices the payment none 2.8 a recipient of a payment under the program known as Tools for Your Trade (within the program known as the Australian Apprenticeships Incentives Program) the payment none 2.9 a recipient of a * HECS-HELP benefit the benefit none INCOME TAX ASSESSMENT ACT 1997 - SECT 51.30 Welfare Welfare Item If you are: ... the following amounts are exempt from income tax: ... subject to these exceptions and special conditions: 5.1 an individual in receipt of periodic payments in the nature of maintenance the payments see section 51-50 5.1A an individual in receipt of an ex-gratia payment from the Commonwealth known as Disaster Income Recovery Subsidy for: (a) the floods that occurred in Australia during the period starting on 29 November 2010; or (b) Cyclone Yasi the payment the payment must be claimed: (a) after 9 January 2011; and (b) before 1 March 2011 5.1B an individual in receipt of an ex-gratia payment from the Commonwealth known as assistance for New Zealand non-protected special category visa holders for a disaster that occurred in Australia during the 2010-11 * financial year the payment the payment must be claimed: (a) after 30 January 2011; and (b) before 1 August 2011 5.5 an individual in receipt of an ex-gratia thalidomide payment from the Commonwealth the payment none 5.6 an individual in receipt of a payment from the Thalidomide Australia Fixed Trust the payment the payment must be: (a) made to you, or applied for your benefit, as a beneficiary of the Trust; or (b) made to you in respect of a beneficiary of the Trust INCOME TAX ASSESSMENT ACT 1997 - SECT 51.32 Compensation payments for loss of tax exempt payments (1) A compensation payment for the loss of pay or an allowance for your warlike service is exempt from income tax if: (a) the compensation payment is made under the Safety, Rehabilitation and Compensation Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) you suffered your injury while covered by a certificate in force under paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936; and (c) your injury or disease caused the loss of your pay or allowance; and (d) your pay or allowance was payable under the Defence Act 1903 or under a determination under that Act. (2) A compensation payment for the loss of pay or an allowance for your warlike service is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) you sustained your service injury or contracted your service disease, or your service injury or disease was aggravated or materially contributed to, while covered by a certificate in force under paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936; and (c) your injury or disease caused the loss of your pay or allowance; and (d) your pay or allowance was payable under the Defence Act 1903 or under a determination under that Act. (3) Subsections (4) and (5) apply to: (a) a deployment allowance; or (b) some other allowance that is exempt from income tax specified in writing by the * Defence Minister for the purposes of this subsection; that is payable under a determination under the Defence Act 1903 for your non-warlike service. (4) A compensation payment for the loss of the allowance is exempt from income tax if: (a) the compensation payment is made under the Safety, Rehabilitation and Compensation Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) your injury caused the loss of your allowance. (5) A compensation payment for the loss of the allowance is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) your injury or disease caused the loss of your allowance. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.33 Compensation payments for loss of pay and/or allowances as a Defence reservist (1) A compensation payment for the loss of your pay or an allowance is exempt from income tax if: (a) the compensation payment is made under the Safety, Rehabilitation and Compensation Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) you suffered your injury while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve (but not while on continuous full time service); and (c) your pay or allowance was payable for service of a kind described in paragraph (b). (2) A compensation payment for the loss of your pay or an allowance is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) you sustained your service injury or contracted your service disease, or your service injury or disease was aggravated or materially contributed to, while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve; and (c) your pay or allowance was payable for service of a kind described in paragraph (b); and (d) the compensation payment is worked out by reference to your normal earnings (as defined in that Act) as a part-time Reservist (as defined in that Act). INCOME TAX ASSESSMENT ACT 1997 - SECT 51.35 Payments to a full-time student at a school, college or university The following payments made to or on behalf of a full-time student at a school, college or university are not exempt from income tax under item 2.1A of the table in section 51-10: (a) a payment by the Commonwealth for assistance for secondary education or in connection with education of isolated children; (b) a * Commonwealth education or training payment; (c) a payment by an entity or authority on the condition that the student will (or will if required) become, or continue to be, an employee of the entity or authority; (d) a payment by an entity or authority on the condition that the student will (or will if required) enter into, or continue to be a party to, a contract with the entity or authority that is wholly or principally for the labour of the student; (e) a payment under a scholarship where the scholarship is not provided principally for educational purposes; (f) an education entry payment under Part 2.13A of the Social Security Act 1991. Note: The whole or part of a Commonwealth education or training payment may be exempt under Subdivision 52-E or 52-F. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.40 Payments to a secondary student The following payments made to or on behalf of a student are not exempt from income tax under item 2.1B of the table in section 51-10: (a) a * Commonwealth education or training payment; (b) an education entry payment under Part 2.13A of the Social Security Act 1991. Note: The whole or part of a Commonwealth education or training payment may be exempt under Subdivision 52-E or 52-F. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.42 Bonuses for early completion of an apprenticeship (1) The bonus must be provided under a scheme provided by a State or Territory, and the scheme must be specified in the regulations for the purposes of this section. (2) The apprenticeship: (a) must be for an occupation of a kind specified in the regulations; and (b) must be completed within a time frame specified in the regulations for apprenticeships of that kind. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.43 Income collected or derived by copyright collecting society (1) This section applies to a * copyright collecting society if Division 6 of Part III of the Income Tax Assessment Act 1936 applies to the income of the society. (2) The following are exempt from income tax: (a) * royalties, and interest on royalties, collected or * derived by the society in an income year; (b) any other amounts, relating to copyright, that are: (i) derived by the society in an income year; and (ii) prescribed by the regulations for the purposes of this paragraph; (c) other * ordinary income and *statutory income derived by the society in an income year, to the extent that it does not exceed the lesser of: (i) 5% of the total amount of the * ordinary income and * statutory income collected and derived by the society in the income year; and (ii) $5 million or such other amount as is prescribed by the regulations for the purposes of this subparagraph. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.45 Income collected or derived by resale royalty collecting society (1) This section applies to the * resale royalty collecting society if Division 6 of Part III of the Income Tax Assessment Act 1936 applies to the income of the society. (2) The following are exempt from income tax: (a) * resale royalties, and interest on resale royalties, collected or * derived by the society in an income year; (b) any other amounts, relating to * resale royalty rights, that are: (i) derived by the society in an income year; and (ii) prescribed by the regulations for the purposes of this paragraph; (c) other * ordinary income and *statutory income derived by the society in an income year, to the extent that it does not exceed the lesser of: (i) 5% of the total amount of the ordinary income and statutory income collected and derived by the society in the income year; and (ii) $5 million or such other amount as is prescribed by the regulations for the purposes of this subparagraph. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.50 Maintenance payments to a spouse or child (1) This section sets out the conditions on which a periodic payment, in the nature of maintenance, that: (a) is made by an individual (the maintenance payer); or (b) is attributable to a payment made by an individual (also the maintenance payer); is exempt from income tax under item 5.1 of the table in section 51-30. (2) The maintenance payment is exempt from income tax only if it is made: (a) to an individual who is or has been the maintenance payer's * spouse; or (b) to or for the benefit of an individual who is or has been: (i) a * child of the maintenance payer; or (ii) a child who is or has been a child of an individual who is or has been a * spouse of the maintenance payer. (3) The maintenance payment is not exempt if, in order to make it or a payment to which it is attributable, the maintenance payer: (a) divested any income-producing assets; or (b) diverted * ordinary income or *statutory income upon which the maintenance payer would otherwise have been liable to income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.52 Income derived from eligible venture capital investments by ESVCLPs General (1) An entity's share of income derived from an * eligible venture capital investment is exempt from income tax if: (a) the entity is a partner in a * limited partnership; and (b) the partnership made the investment; and (c) the investment meets all of the * additional investment requirements for ESVCLPs for the investment; and (d) when the partnership made the investment, the partnership was an * early stage venture capital limited partnership that was *unconditionally registered; and (e) when the income was derived, the partnership: (i) owned the investment; and (ii) was an early stage venture capital limited partnership that was unconditionally registered. Partners in AFOFs (2) An entity's share of income derived from an * eligible venture capital investment is exempt from income tax if: (a) the entity is a partner in an * AFOF; and (b) the AFOF is a partner in a partnership that made the investment; and (c) when the partnership made the investment, the partnership was an * early stage venture capital limited partnership that was *unconditionally registered; and (d) the investment meets all of the * additional investment requirements for ESVCLPs for the investment; and (e) when the income was derived, the partnership: (i) owned the investment; and (ii) was an early stage venture capital limited partnership that was unconditionally registered. Residency requirements for general partners (3) However, if the entity is a * general partner in the partnership, this section does not apply to the entity unless the entity is: (a) an Australian resident; or (b) a resident of a foreign country in respect of which a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) is in force that is an agreement of a kind referred to in subparagraph (b)(i), (ia), (ii), (iii), (iv) or (v) of that definition. (4) For the purposes of this section, the place of residence of a * general partner in a *limited partnership: (a) that is a company or limited partnership; and (b) that is not an Australian resident; is the place in which the general partner has its central management and control. Beneficiaries' shares of capital gains made by unit trusts (5) For the purposes of this section, an entity's share of income derived from an * eligible venture capital investment that is an investment in a unit trust includes any present entitlement of the entity, as a beneficiary, to a share of an amount included in the assessable income of the unit trust under section 102-5. Carried interests (6) This section does not apply to an entity's share of income derived from an * eligible venture capital investment to the extent that the income is a payment of a * carried interest of a *general partner in an * ESVCLP or an * AFOF. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.54 Gain or profit from disposal of eligible venture capital investments Partners in VCLPs and ESVCLPs (1) An entity's share of any gain or profit made from the disposal or other realisation of an * eligible venture capital investment is exempt from income tax if: (a) it is made by a * VCLP, or an *ESVCLP, that is *unconditionally registered; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, the entity's share of any * capital gain or *capital loss would be disregarded under section 118-405 or 118-407. Partners in AFOFs (2) An entity's share of any gain or profit made from the disposal or other realisation of an * eligible venture capital investment is exempt from income tax if: (a) it is made by: (i) an * AFOF that is *unconditionally registered; or (ii) a * VCLP, or an *ESVCLP, that is unconditionally registered and in which an AFOF that is * unconditionally registered is a partner; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, the entity's share of any * capital gain or *capital loss would be disregarded under section 118-410. Eligible venture capital investors (3) Any gain or profit made from the disposal or other realisation of an * eligible venture capital investment is exempt from income tax if: (a) you are an * eligible venture capital investor; and (b) were that disposal or other realisation to be a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under section 118-415. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.55 Gain or profit from disposal of venture capital equity Any gain or profit made from the disposal or other realisation of * venture capital equity in a *resident investment vehicle is exempt from income tax if: (a) it is made by a * venture capital entity or a * limited partnership referred to in subsection 118-515(2); and (b) if that disposal or other realisation were a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under Subdivision 118-G. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.57 Interest on judgment debt relating to personal injury (1) An amount paid by way of interest on a judgment debt, whether payable under an * Australian law, or otherwise, is exempt from income tax if: (a) the judgment debt arose from a judgment (the original judgment) given by, or entered in, a court for an award of damages for personal injury; and (b) the amount is in respect of the whole or any part of the period: (i) beginning at the time of the original judgment, or, if the judgment debt is taken to have arisen at an earlier time, at that earlier time; and (ii) ending when the original judgment is finalised. (2) For the purposes of subsection (1), an original judgment is finalised at whichever of the following times is applicable: (a) if the period for lodging an appeal against either the original judgment or a subsequent related judgment ends without an appeal being lodged--the end of the period; (b) if an appeal from either the original judgment or a subsequent related judgment is lodged and final judgment on the appeal is given by, or entered in, a court--when the final judgment takes effect; (c) if an appeal from either the original judgment or a subsequent related judgment is lodged but is settled or discontinued--when the settlement or discontinuance takes effect. (3) For the purposes of paragraph (2)(b), a judgment is a final judgment if: (a) no appeal lies against the judgment; or (b) leave to appeal against the judgment has been refused. INCOME TAX ASSESSMENT ACT 1997 - SECT 51.60 Prime Minister's Prizes (1) To the extent that the Prime Minister's Prize for Australian History would otherwise be assessable income, it is exempt from income tax. (2) To the extent that the Prime Minister's Prize for Science would otherwise be assessable income, it is exempt from income tax. (3) To the extent that a Prime Minister's Literary Award would otherwise be assessable income, it is exempt from income tax. Guide to Division 52 INCOME TAX ASSESSMENT ACT 1997 - SECT 52.1 What this Division is about Certain payments made under various Acts are wholly or partly exempt from income tax. This Division tells you if a payment is exempt and how much is exempt. Table of Subdivisions 52-A Exempt payments under the Social Security Act 1991 52-B Exempt payments under the Veterans' Entitlements Act 1986 52-C Exempt payments made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 52-CA Exempt payments under the Military Rehabilitation and Compensation Act 2004 52-CB Exempt payments under the Australian Participants in British Nuclear Tests (Treatment) Act 2006 52-D Exempt payments made by the Commonwealth to reimburse certain expenditure 52-E Exempt payments under the ABSTUDY scheme 52-F Exemption of Commonwealth education or training payments 52-G Exempt payments under the A New Tax System (Family Assistance) (Administration) Act 1999 52-H Other exempt payments Guide to Subdivision 52-A INCOME TAX ASSESSMENT ACT 1997 - SECT 52.5 What this Subdivision is about This Subdivision tells you: (a) the payments under the Social Security Act 1991 that are wholly or partly exempt from income tax; and (b) any special circumstances, conditions or exceptions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 52-10 How much of a social security payment is exempt? 52-15 Supplementary amounts of payments 52-20 Tax-free amount of an ordinary payment after the death of your partner 52-25 Tax-free amount of certain bereavement lump sum payments 52-30 Tax-free amount of certain other bereavement lump sum payments 52-35 Tax-free amount of a lump sum payment made because of the death of a person you are caring for 52-40 Provisions of the Social Security Act 1991 under which payments are made Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 52.10 How much of a social security payment is exempt? (1) The table in this section tells you about the income tax treatment of social security payments, other than payments of: (a) pension bonus and pension bonus bereavement payment; or (aa) child disability assistance; or (ab) carer supplement; or (b) one-off payment to the aged; or (ba) 2006 one-off payment to older Australians; or (baa) 2007 one-off payment to older Australians; or (bab) 2008 one-off payment to older Australians; or (bb) payments under a scheme referred to in subsection (1CB); or (c) one-off payment to carers (carer payment related); or (d) one-off payment to carers (carer allowance related); or (e) 2005 one-off payment to carers (carer payment related); or (f) 2005 one-off payment to carers (carer service pension related); or (g) 2005 one-off payment to carers (carer allowance related); or (h) 2006 one-off payment to carers (carer payment related); or (i) 2006 one-off payment to carers (wife pension related); or (j) 2006 one-off payment to carers (partner service pension related); or (k) 2006 one-off payment to carers (carer service pension related); or (l) 2006 one-off payment to carers (carer allowance related); or (m) 2007 one-off payment to carers (carer payment related); or (n) 2007 one-off payment to carers (wife pension related); or (o) 2007 one-off payment to carers (partner service pension related); or (p) 2007 one-off payment to carers (carer service pension related); or (q) 2007 one-off payment to carers (carer allowance related); or (r) 2008 one-off payment to carers (carer payment related); or (s) 2008 one-off payment to carers (wife pension related); or (t) 2008 one-off payment to carers (partner service pension related); or (u) 2008 one-off payment to carers (carer service pension related); or (v) 2008 one-off payment to carers (carer allowance related); or (w) payments under a scheme referred to in subsection (1E); or (wa) payments under the Social Security Act 1991 referred to in subsection (1EA); or (x) economic security strategy payment under the Social Security Act 1991; or (y) training and learning bonus under the Social Security Act 1991; or (z) farmers hardship bonus under the Social Security Act 1991; or (za) education entry payment supplement under the Social Security Act 1991. Note: Section 52-40 sets out the provisions of the Social Security Act 1991 under which the payments are made. (1A) Payments of pension bonus and pension bonus bereavement payment under Part 2.2A of the Social Security Act 1991 are exempt from income tax. (1AA) Child disability assistance under Part 2.19AA of the Social Security Act 1991 is exempt from income tax. (1AB) Carer supplement under Part 2.19B of the Social Security Act 1991 is exempt from income tax. (1B) One-off payment to the aged under Division 1 of Part 2.2B of the Social Security Act 1991 is exempt from income tax. (1C) Payments made by the Commonwealth and known as the one-off payment to the aged are exempt from income tax. (1CA) The following payments under the Social Security Act 1991 are exempt from income tax: (a) 2006 one-off payment to older Australians (see Division 2 of Part 2.2B of that Act); (b) 2007 one-off payment to older Australians (see Division 3 of Part 2.2B of that Act); (c) 2008 one-off payment to older Australians (see Division 4 of Part 2.2B of that Act). (1CB) Payments to older Australians under the following schemes are exempt from income tax: (a) a scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006; (b) a scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007; (c) a scheme determined under item 1 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008. (1D) The following payments under the Social Security Act 1991 are exempt from income tax: (a) one-off payment to carers (carer payment related) (see Division 1 of Part 2.5A of that Act); (b) one-off payment to carers (carer allowance related) (see Division 1 of Part 2.19A of that Act); (c) 2005 one-off payment to carers (carer payment related) (see Division 2 of Part 2.5A of that Act); (d) 2005 one-off payment to carers (carer service pension related) (see Division 3 of Part 2.5A of that Act); (e) 2005 one-off payment to carers (carer allowance related) (see Division 2 of Part 2.19A of that Act); (f) 2006 one-off payment to carers (carer payment related) (see Division 4 of Part 2.5A of that Act); (g) 2006 one-off payment to carers (wife pension related) (see Division 5 of Part 2.5A of that Act); (h) 2006 one-off payment to carers (partner service pension related) (see Division 6 of Part 2.5A of that Act); (i) 2006 one-off payment to carers (carer service pension related) (see Division 7 of Part 2.5A of that Act); or (j) 2006 one-off payment to carers (carer allowance related) (see Division 3 of Part 2.19A of that Act); (k) 2007 one-off payment to carers (carer payment related) (see Division 8 of Part 2.5A of that Act); (l) 2007 one-off payment to carers (wife pension related) (see Division 9 of Part 2.5A of that Act); (m) 2007 one-off payment to carers (partner service pension related) (see Division 10 of Part 2.5A of that Act); (n) 2007 one-off payment to carers (carer service pension related) (see Division 11 of Part 2.5A of that Act); (o) 2007 one-off payment to carers (carer allowance related) (see Division 4 of Part 2.19A of that Act); (p) 2008 one-off payment to carers (carer payment related) (see Division 12 of Part 2.5A of that Act); (q) 2008 one-off payment to carers (wife pension related) (see Division 13 of Part 2.5A of that Act); (r) 2008 one-off payment to carers (partner service pension related) (see Division 14 of Part 2.5A of that Act); (s) 2008 one-off payment to carers (carer service pension related) (see Division 15 of Part 2.5A of that Act); (t) 2008 one-off payment to carers (carer allowance related) (see Division 5 of Part 2.19A of that Act). (1E) Payments to carers under the following schemes are exempt from income tax: (a) a scheme determined under Schedule 3 to the Family Assistance Legislation Amendment (More Help for Families--One-off Payments) Act 2004; (b) a scheme determined under Schedule 2 to the Social Security Legislation Amendment (One-off Payments for Carers) Act 2005; (c) a scheme determined under Schedule 4 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006; (d) a scheme determined under Schedule 4 to the Social Security and Veterans' Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007; (e) a scheme determined under Schedule 4 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008. (1EA) The following payments under the Social Security Act 1991 are exempt from income tax: (a) voluntary income management incentive payment (see Part 2.25D of that Act); (b) matched savings scheme (income management) payment (see Part 2.25E of that Act). (1F) Economic security strategy payment under the Social Security Act 1991 is exempt from income tax. (1G) Training and learning bonus under the Social Security Act 1991 is exempt from income tax. (1H) Farmers hardship bonus under the Social Security Act 1991 is exempt from income tax. (1J) Education entry payment supplement under the Social Security Act 1991 is exempt from income tax. (2) Expressions used in this Subdivision that are also used in the Social Security Act 1991 have the same meaning as in that Act. (3) Ordinary payment means a payment other than a payment made because of a person's death. Income tax treatment of social security payments Item Payment Case 1 Case 2 Case 3 Case 4 1.1 Advance pharmaceutical supplement Exempt Exempt Not applicable Not applicable 2.1 Age pension Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 2AA.1 Australian Government Disaster Recovery Payment Exempt Exempt Not applicable Not applicable 2A.1 Austudy payment Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) 3.1 Bereavement allowance Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Not applicable 3A.1 Carer allowance Exempt Exempt Exempt Not applicable 4.1 Carer payment: you are pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt, but if it is made under section 236A of the Social Security Act 1991, exempt only up to the tax-free amount (see section 52-35) Exempt up to the tax-free amount if it is made under section 239 of the Social Security Act 1991 (see section 52-25) 4.2 Carer payment: the care receiver or any of the care receivers is pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt, but if it is made under section 236A of the Social Security Act 1991, exempt only up to the tax-free amount (see section 52-35) Exempt up to the tax-free amount if it is made under section 239 of the Social Security Act 1991 (see section 52-25) 4.3 Carer payment: both you and the care receiver or all of the care receivers are under pension age Exempt Exempt Exempt, but if it is made under section 236A of the Social Security Act 1991, exempt only up to the tax-free amount (see section 52-35) Exempt up to the tax-free amount if it is made under section 239 of the Social Security Act 1991 (see section 52-25) 4.4 Carer payment: you are under pension age and any of the care receivers has died Exempt Exempt Exempt, but if it is made under section 236A of the Social Security Act 1991, exempt only up to the tax-free amount (see section 52-35) Exempt up to the tax-free amount if it is made under section 239 of the Social Security Act 1991 (see section 52-25) 5.1 Crisis payment Exempt Exempt Not applicable Not applicable 6.1 Disability support pension: you are pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 6.2 Disability support pension: you are under pension age Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 9.1 Double orphan pension Exempt Exempt Exempt Not applicable 13A.1 Fares allowance Exempt Exempt Not applicable Not applicable 15.1 Mature age allowance (paid under Part 2.12A) Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 16.1 Mature age allowance (paid under Part 2.12B) Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) 17.1 Mature age partner allowance Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Exempt up to the tax-free amount (see section 52-25) 18.1 Mobility allowance Exempt Exempt Not applicable Not applicable 19.1 Newstart allowance Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) 21A.1 Parenting payment (benefit PP (partnered)) Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Exempt up to the tax-free amount (see section 52-30) 21A.3 Parenting payment (pension PP (single)) Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Not applicable 22.1 Partner allowance Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Exempt up to the tax-free amount (see section 52-30) 22A.1 Pensioner education supplement Exempt Exempt Not applicable Not applicable 22B.1 Seniors supplement Exempt Exempt Not applicable Not applicable 22C.1 Quarterly pension supplement Exempt Exempt Not applicable Not applicable 23.1 Sickness allowance Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) 25.1 Special benefit Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) 26.1 Special needs age pension Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 27.1 Special needs disability support pension: you are pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 27.2 Special needs disability support pension: you are under pension age Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 29.1 Special needs widow B pension Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Not applicable Not applicable 30.1 Special needs wife pension: you are pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 30.2 Special needs wife pension: your partner is pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-25) 30.3 Special needs wife pension: both you and your partner are under pension age Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 30.4 Special needs wife pension: you are under pension age and your partner has died Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 31.1 Telephone allowance Exempt Exempt Not applicable Not applicable 31A.1 Utilities allowance Exempt Exempt Not applicable Not applicable 32.1 Widow allowance Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Not applicable Not applicable 33.1 Widow B pension Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Not applicable 34.1 Wife pension: you are pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Exempt up to the tax-free amount (see section 52-25) 34.2 Wife pension: your partner is pension age or over Supplementary amount is exempt (see section 52-15) Supplementary amount is exempt (see section 52-15) Exempt Exempt up to the tax-free amount (see section 52-25) 34.3 Wife pension: both you and your partner are under pension age Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 34.4 Wife pension: you are under pension age and your partner has died Exempt Exempt Exempt Exempt up to the tax-free amount (see section 52-25) 35.1 Youth allowance Supplementary amount is exempt (see section 52-15) Supplementary amount, and tax-free amount, are exempt (see sections 52-15 and 52-20) Exempt Exempt up to the tax-free amount (see section 52-30) INCOME TAX ASSESSMENT ACT 1997 - SECT 52.15 Supplementary amounts of payments You work out the supplementary amount of a social security payment using the following table: Supplementary amount of a social security payment Item For this category of social security payment: the supplementary amount is the total of: 1 Age pension Bereavement allowance Carer payment Sickness allowance Special benefit Special needs age pension Special needs disability support pension Special needs widow B pension Special needs wife pension Widow B pension Wife pension (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as is included by way of remote area allowance; and (c) so much of the payment as is included by way of pharmaceutical allowance; and (d) so much of the payment as is included by way of tax-exempt pension supplement 2 Disability support pension (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as is included by way of remote area allowance; and (c) so much of the payment as is included by way of pharmaceutical allowance; and (d) so much of the payment as is included by way of incentive allowance; and (e) so much of the payment as is included by way of language, literacy and numeracy supplement; and (f) so much of the payment as is included by way of tax-exempt pension supplement 3 Newstart allowance Parenting payment (benefit (PP partnered)) Parenting payment (pension (PP single)) Partner allowance Widow allowance Youth allowance (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as is included by way of remote area allowance; and (c) so much of the payment as is included by way of pharmaceutical allowance; and (d) so much of the payment as is included by way of language, literacy and numeracy supplement; and (e) so much of the payment as is included by way of tax-exempt pension supplement 4 Austudy payment (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as is included by way of remote area allowance; and (c) so much of the payment as is included by way of pharmaceutical allowance; and (d) so much of the payment as is included by way of tax-exempt pension supplement INCOME TAX ASSESSMENT ACT 1997 - SECT 52.20 Tax-free amount of an ordinary payment after the death of your partner (1) You work out under this section the * tax-free amount of an * ordinary payment made under the Social Security Act 1991 after the death of your partner if: (a) you do not qualify for payments under a * bereavement Subdivision; and (b) the ordinary payment became due to you during the bereavement period. Note: For the provisions of the Social Security Act 1991 that tell you if you qualify for payments under a bereavement Subdivision: see subsection (3). (2) This is how to work out the tax-free amount: Method statement Step 1. Work out the * supplementary amount of the payment. Note: The supplementary amount is also exempt and is worked out under section 52-15. Step 2. Subtract the * supplementary amount from the amount of the payment. Step 3. Work out what would have been the amount of the payment if your partner had not died. Step 4. Work out what would have been the * supplementary amount of the payment if your partner had not died. Step 5. Subtract the amount at Step 4 from the amount at Step 3. Step 6. Subtract the amount at Step 5 from the amount at Step 2: the result is the tax-free amount. (3) This table sets out: (a) the Subdivisions of the Social Security Act 1991 that are bereavement Subdivisions; and (b) the provision of that Act that tells you if you qualify for payments under the relevant bereavement Subdivision. Bereavement Subdivisions Item For this bereavement Subdivision: This provision tells you if you qualify for payments under it: 1 Subdivision A of Division 9 of Part 2.2 paragraph 82(1)(e) 2 Subdivision A of Division 10 of Part 2.3 paragraph 146F(1)(e) 3 Subdivision B of Division 9 of Part 2.5 paragraph 237(1)(e) 5 Subdivision A of Division 10 of Part 2.9 paragraph 469(1)(e) 5A Division 10 of Part 2.11 paragraph 567(1)(f) 5B Division 10 of Part 2.11A paragraph 592(1)(f) 6 Subdivision AA of Division 9 of Part 2.12 paragraph 660LA(1)(f) 7 Subdivision A of Division 11 of Part 2.12A paragraph 660XKA(1)(e) 8 Subdivision C of Division 11 of Part 2.12B paragraph 660YKC(1)(e) 9 Subdivision AA of Division 9 of Part 2.14 paragraph 728PA(1)(f) 10 Subdivision AA of Division 9 of Part 2.15 paragraph 768A(1)(f) 11 Subdivision A of Division 10 of Part 2.16 paragraph 822(1)(e) INCOME TAX ASSESSMENT ACT 1997 - SECT 52.25 Tax-free amount of certain bereavement lump sum payments (1) This section applies if a lump sum of any of these categories of social security payments becomes due to you because of your partner's death. Category of social security payment Age pension Carer payment Disability support pension Mature age allowance (paid under Part 2.12A) Mature age partner allowance Special needs age pension Special needs disability support pension Special needs wife pension Wife pension (2) The total of the following are exempt up to the * tax-free amount: (a) the lump sum payment; (b) all other payments that become due to you under the Social Security Act 1991 during the bereavement lump sum period. (3) This is how to work out the tax-free amount: Method statement Step 1. Work out the payments under the Social Security Act 1991 that would have become due to you during the bereavement lump sum period if: (a) your partner had not died; and (b) your partner had been under pension age; and (c) immediately before your partner died, you and your partner had been neither an illness separated couple nor a respite care couple. Step 2. Work out how much of those payments would have been exempt in those circumstances. Step 3. Work out the payments under the Social Security Act 1991 or Part III of the Veterans' Entitlements Act 1986 that would have become due to your partner during the bereavement lump sum period if: (a) your partner had not died; and (b) immediately before your partner died, you and your partner were neither an illness separated couple nor a respite care couple; even if the payments would not have been exempt. Step 4. Total the payments worked out at Steps 2 and 3: the result is the tax-free amount. Example: You are receiving a disability support pension of $300 a fortnight and a pharmaceutical allowance of $5 a fortnight. You are over pension age. Your partner is receiving a partner allowance of $250 a fortnight and rent assistance of $75 a fortnight. Your partner dies. Seven instalments are due to you during the bereavement lump sum period. You work out the tax-free amount as follows: Step 1: The instalments that would have become due to you during the bereavement lump sum period are: The total for the period is $2,135. Step 2: The exempt component of each instalment is $5. The total for the 7 instalments is $35. Step 3: The instalments that would have become due to your partner during the same period are: The total for the period is $2,275. Step 4: The tax-free amount is: INCOME TAX ASSESSMENT ACT 1997 - SECT 52.30 Tax-free amount of certain other bereavement lump sum payments (1) This section applies if a lump sum of any of these categories of social security payments becomes due to you because of your partner's death. Category of social security payment Austudy payment Mature age allowance (paid under Part 2.12B) Newstart allowance Parenting payment (benefit PP (partnered)) Partner allowance Sickness allowance Special benefit Youth allowance (2) The total of the following are exempt up to the * tax-free amount: (a) the lump sum payment; (b) all other payments that become due to you under the Social Security Act 1991 during the bereavement lump sum period. (3) This is how to work out the tax-free amount: Method statement Step 1. Work out the payments under the Social Security Act 1991 that would have become due to you during the bereavement lump sum period if: (a) your partner had not died; and (b) your partner had been under pension age; and (c) immediately before your partner died, you and your partner had been neither an illness separated couple nor a respite care couple. Step 2. Work out how much of those payments would have been exempt in those circumstances. Step 3. Work out the payments under the Social Security Act 1991 that would have become due to your partner during the bereavement lump sum period if your partner had not died, even if the payments would not have been exempt. Step 4. Total the payments worked out at Steps 2 and 3: the result is the tax-free amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.35 Tax-free amount of a lump sum payment made because of the death of a person you are caring for (1) This section applies if a lump sum payment becomes due to you under section 236A of the Social Security Act 1991 because of the death of the care receiver or any of the care receivers. (2) The total of the following are exempt up to the * tax-free amount: (a) the lump sum payment; (b) all other payments that become due to you under the Social Security Act 1991 during the bereavement lump sum period. (3) This is how to work out the tax-free amount: Method statement Step 1. Work out the payments under the Social Security Act 1991 that would have become due to you during the bereavement lump sum period if: (a) the care receiver had not died; and (b) the care receiver had been under pension age. Step 2. Work out how much of those payments would have been exempt in those circumstances. Step 3. Work out the payments under the Social Security Act 1991 that would have become due to the care receiver during the bereavement lump sum period if the care receiver had not died, even if the payments would not have been exempt. Step 4. Total the payments worked out at Steps 2 and 3: the result is the tax-free amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.40 Provisions of the Social Security Act 1991 under which payments are made This table lists the provisions of the Social Security Act 1991 under which social security payments are made that are wholly or partly exempt from income tax under this Subdivision. Provisions under which social security payments are made Item Category of social security payment Ordinary payment Payment made because of a person's death (unless covered by next column) Lump sum payment made because of your partner's death 1 Advance pharmaceutical supplement Part 2.23 Not applicable Not applicable 2 Age pension Part 2.2 Sections 83, 86 and 91 Section 84 2AA Australian Government Disaster Recovery Payment Part 2.24 Not applicable Not applicable 2A Austudy payment Part 2.11A Section 592A Section 592B 3 Bereavement allowance Part 2.7 Section 359 Not applicable 3A Carer allowance Part 2.19 Sections 992K and 992M Not applicable 4 Carer payment Part 2.5 Sections 236A, 238, 241 and 246 Section 239 5 Crisis payment Part 2.23A Not applicable Not applicable 6 Disability support pension Part 2.3 Sections 146G, 146K and 146Q Section 146H 9 Double orphan pension Part 2.20 Sections 1034 and 1034A Not applicable 13A Fares allowance Part 2.26 Not applicable Not applicable 15 Mature age allowance (paid under Part 2.12A) Part 2.12A Sections 660XKB, 660XKE and 660XKG Section 660XKC 16 Mature age allowance (paid under Part 2.12B) Part 2.12B Section 660YKD Section 660YKE 17 Mature age partner allowance Part 2.12A Sections 660XKK and 660XKM Section 660XKL 18 Mobility allowance Part 2.21 Not applicable Not applicable 19 Newstart allowance Part 2.12 Section 660LB Section 660LC 21A Parenting payment (benefit PP (partnered)) Part 2.10 Sections 513A and 514B Section 514C 21C Parenting payment (pension PP (single)) Part 2.10 Section 513 Not applicable 22 Partner allowance Part 2.15A Section 771NW Section 771NX 22A Pensioner education supplement Part 2.24A Not applicable Not applicable 22B Seniors supplement Part 2.25B Not applicable Not applicable 22C Quarterly pension supplement Part 2.25C Not applicable Not applicable 23 Sickness allowance Part 2.14 Section 728PB Section 728PC 25 Special benefit Part 2.15 Section 768B Section 768C 26 Special needs age pension Section 772 Sections 823, 826 and 830 Section 824 27 Special needs disability support pension Section 773 Sections 823, 826 and 830 Section 824 29 Special needs widow B pension Section 778 Not applicable Not applicable 30 Special needs wife pension Section 774 Sections 823, 826 and 830 Section 824 31 Telephone allowance Part 2.25 Not applicable Not applicable 31A Utilities allowance Part 2.25A Not applicable Not applicable 32 Widow allowance Part 2.8A Not applicable Not applicable 33 Widow B pension Part 2.8 Section 407 Not applicable 34 Wife pension Part 2.4 Sections 189 and 191 Section 190 35 Youth allowance Part 2.11 Section 567A Section 567B Guide to Subdivision 52-B INCOME TAX ASSESSMENT ACT 1997 - SECT 52.60 What this Subdivision is about This Subdivision tells you: (a) the payments under the Veterans' Entitlements Act 1986 that are wholly or partly exempt from income tax; and (b) any special circumstances, conditions or exceptions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 52-65 How much of a veterans' affairs payment is exempt? 52-70 Supplementary amounts of payments 52-75 Provisions of the Veterans' Entitlements Act 1986 under which payments are made Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 52.65 How much of a veterans' affairs payment is exempt? (1) The table in this section tells you about the income tax treatment of veterans' affairs payments, other than: (a) payments of pension bonus, pension bonus bereavement payment, DFISA bonus or DFISA bonus bereavement payment; or (bb) 2008 one-off payment to older Australians; or (c) payments under a scheme referred to in subsection (1C); or (d) economic security strategy payment under the Veterans' Entitlements Act 1986; or (e) a prisoner of war recognition supplement under Part VIB of the Veterans' Entitlements Act 1986. Note: Section 52-75 sets out the provisions of the Veterans' Entitlements Act 1986 under which the payments are made. (1A) The following payments under the Veterans' Entitlements Act 1986 are exempt from income tax: (a) pension bonus and pension bonus bereavement payment under Part IIIAB; (b) DFISA bonus and DFISA bonus bereavement payment under Part VIIAB. (1B) Payments of 2008 one-off payment to older Australians under Part VIIF of the Veterans' Entitlements Act 1986 are exempt from income tax. (1C) Payments to older Australians under a scheme determined under item 2 of Schedule 2 to the Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008 are exempt from income tax. (1D) Economic security strategy payment under the Veterans' Entitlements Act 1986 is exempt from income tax. (1E) A lump sum payment under section 198N of the Veterans' Entitlements Act 1986 is exempt from income tax. (1F) A prisoner of war recognition supplement under Part VIB of the Veterans' Entitlements Act 1986 is exempt from income tax. (2) Expressions (except "pension age") used in this Subdivision that are also used in the Veterans' Entitlements Act 1986 have the same meaning as in that Act. (3) Pension age has the meaning given by subsection 23(1) of the Social Security Act 1991. (4) Ordinary payment means a payment other than a payment made because of a person's death. Income tax treatment of veterans' affairs payments Item Category of veterans' affairs payment Ordinary payment Payment made because of a person's death 1.1 Age service pension Supplementary amount is exempt (see section 52-70) Exempt 2.1 Attendant allowance Exempt Not applicable 3.1 Carer service pension: unless covered by item 3.2 or 3.3 Supplementary amount is exempt (see section 52-70) Exempt 3.2 Carer service pension: both you and your partner are under pension age and your partner is receiving an invalidity service pension Exempt Exempt 3.3 Carer service pension: you are under pension age, your partner has died and was receiving an invalidity service pension at death Exempt Exempt 4.1 Clothing allowance Exempt Not applicable 5.1 Decoration allowance Exempt Not applicable 5A.1 Defence Force Income Support Allowance: the whole of the social security pension, or the whole of the social security benefit, that is also payable to you on the day this allowance is payable to you is exempt from income tax under section 52-10 Exempt Not applicable 6.1 Income support supplement: unless covered by item 6.2, 6.3, 6.4 or 6.5 Supplementary amount is exempt (see section 52-70) Exempt 6.2 Income support supplement: you are under pension age and receiving the supplement on the grounds of permanent incapacity Exempt Exempt 6.3 Income support supplement: both you and the severely handicapped person you are caring for are under pension age and you are receiving the supplement for providing constant care for that person Exempt Exempt 6.4 Income support supplement: both you and your partner are under pension age and your partner is an invalidity service pensioner or a disability support pensioner Exempt Exempt 6.5 Income support supplement: both you and your partner are under pension age and your partner is receiving the supplement on the grounds of permanent incapacity Exempt Exempt 7.1 Invalidity service pension: you are pension age or over Supplementary amount is exempt (see section 52-70) Exempt 7.2 Invalidity service pension: you are under pension age Exempt Exempt 8.1 Loss of earnings allowance Exempt Not applicable 9.1 Partner service pension: unless covered by item 9.2 or 9.3 Supplementary amount is exempt (see section 52-70) Exempt 9.2 Partner service pension: both you and your partner are under pension age and your partner is receiving an invalidity service pension Exempt Exempt 9.3 Partner service pension: you are under pension age, your partner has died and was receiving an invalidity service pension at death Exempt Exempt 10.1 Pension for defence-caused death or incapacity Exempt Not applicable 11.1 Pension for war-caused death or incapacity Exempt Not applicable 12.1 Quarterly pension supplement Exempt Not applicable 13.1 Recreation transport allowance Exempt Not applicable 14.1 Section 98A Bereavement payment Not applicable Exempt 14.2 Section 98AA Bereavement payment Not applicable Exempt 15.1 Section 99 funeral benefit Not applicable Exempt 16.1 Section 100 funeral benefit Not applicable Exempt 16A.1 Seniors supplement Exempt Not applicable 17.1 Special assistance Exempt Not applicable 20.1 Travelling expenses Exempt Not applicable 21.1 Vehicle Assistance Scheme Exempt Not applicable 21A.1 Veterans supplement Exempt Not applicable 22.1 Victoria Cross allowance Exempt Not applicable INCOME TAX ASSESSMENT ACT 1997 - SECT 52.70 Supplementary amounts of payments The supplementary amount of a veterans' affairs payment is the total of: (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as is included by way of an additional amount for each of your dependent * children; and (c) so much of the payment as is included by way of remote area allowance; and (d) so much of the payment as is equal to the tax-exempt pension supplement for the payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.75 Provisions of the Veterans' Entitlements Act 1986 under which payments are made This table lists the provisions of the Veterans' Entitlements Act 1986 under which veterans' affairs payments are made that are wholly or partly exempt from income tax under this Subdivision. Provisions under which veterans' affairs payments are made Item Category of veterans' affairs payment Ordinary payment Payment made because of a person's death 1C 2008 one-off payment to older Australians Part VIIF Not applicable 1 Age service pension Division 3 of Part III Parts III and IIIA 2 Attendant allowance Section 98 Not applicable 3 Carer service pension Division 6 of Part III Parts III and IIIA 4 Clothing allowance Section 97 Not applicable 5 Decoration allowance Section 102 Not applicable 5A Defence Force Income Support Allowance Part VIIAB Not applicable 5B Economic security strategy payment Part VIIG Not applicable 6 Income support supplement Part IIIA Parts III and IIIB 7 Invalidity service pension Division 4 of Part III Parts III and IIIA 8 Loss of earnings allowance Section 108 Not applicable 9 Partner service pension Division 5 of Part III Parts III and IIIA 10 Pension for defence-caused death or incapacity Part IV Not applicable 11 Pension for war-caused death or incapacity Part II Not applicable 12 Quarterly pension supplement Part IIID Not applicable 12A Prisoner of war recognition supplement Part VIB Not applicable 13 Recreation transport allowance Section 104 Not applicable 14 Section 98A Bereavement payment Not applicable Section 98A 14A Section 98AA Bereavement payment Not applicable Section 98AA 15 Section 99 funeral benefit Not applicable Section 99 16 Section 100 funeral benefit Not applicable Section 100 16A Seniors supplement Part VIIAD Not applicable 17 Special assistance Section 106 Not applicable 20 Travelling expenses Section 110 Not applicable 21 Vehicle Assistance Scheme Section 105 Not applicable 21A Veterans supplement Part VIIA Not applicable 22 Victoria Cross allowance Section 103 Not applicable Guide to Subdivision 52-C INCOME TAX ASSESSMENT ACT 1997 - SECT 52.100 What this Subdivision is about This Subdivision tells you: (a) the payments made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 that are wholly or partly exempt from income tax; and (b) any special circumstances, conditions or exceptions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 52-105 Supplementary amount of a payment made under the Repatriation Act 1920 is exempt 52-110 Other exempt payments Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 52.105 Supplementary amount of a payment made under the Repatriation Act 1920 is exempt (1) The * supplementary amount of a payment made to you is exempt from income tax if: (a) you are a * parent of a *member of the Forces who has died (but you are neither a widow nor a woman divorced or deserted by her husband) and you are of * pension age or over; or (b) you are the mother of a * member of the Forces who has died and you are also a widow, or divorced or deserted by your husband; and the payment is covered by subsection (2). (2) The payment must be made in circumstances that are a prescribed case under: (a) Table A in Schedule 3 to the Repatriation Act 1920; or (b) that Table as applying because of the Repatriation (Far East Strategic Reserve) Act 1956; or (c) that Table as applying because of the Repatriation (Special Overseas Service) Act 1962; or (d) that Table as applying because of the Interim Forces Benefits Act 1947; as in force because of subsection 4(6) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986. (3) The supplementary amount is the total of: (a) so much of the payment as is included by way of rental assistance; and (b) so much of the payment as is included by way of an additional amount for each of your dependent * children; and (c) so much of the payment as is included by way of remote area allowance. (4) Member of the Forces has the same meaning as in the Act referred to in the relevant paragraph of subsection (2). (5) Expressions (except pension age) used in this Subdivision that are also used in the Veterans' Entitlements Act 1986 have the same meaning as in that Act. (6) Pension age has the meaning given by subsection 23(1) of the Social Security Act 1991. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.110 Other exempt payments Payments (except those covered by section 52-105) made because of subsection 4(6) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 are exempt from income tax. Guide to Subdivision 52-CA INCOME TAX ASSESSMENT ACT 1997 - SECT 52.112 What this Subdivision is about This Subdivision tells you: (a) the payments under the Military Rehabilitation and Compensation Act 2004 that are wholly or partly exempt from income tax; and (b) any special circumstances, conditions or exceptions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 52-114 How much of a payment under the Military Rehabilitation and Compensation Act is exempt? Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 52.114 How much of a payment under the Military Rehabilitation and Compensation Act is exempt? (1) The table in this section tells you about the income tax treatment of payments under the Military Rehabilitation and Compensation Act 2004. References in the table to provisions are to provisions of that Act. (2) Expressions used in this Subdivision that are also used in the Military Rehabilitation and Compensation Act 2004 have the same meanings as in that Act. (3) Ordinary payment means a payment other than a payment made because of a person's death. Income tax treatment of Military Rehabilitation and Compensation Act payments Item Category of payment and provision under which it is paid Ordinary payment Payment because of a person's death 1 Alterations to aids and appliances relating to rehabilitation (section 57) Exempt Not applicable 2 Compensation for journey and accommodation costs (sections 47, 290, 291 and 297 and subsection 328(4)) Exempt Not applicable 3 Compensation for permanent impairment (sections 68, 71, 75 and 80) Exempt Exempt 4 Compensation for financial advice (sections 81, 205 and 239) Exempt Not applicable 5 Compensation for incapacity for Permanent Forces member or continuous full-time Reservist (section 85) See section 51-32 Exempt 6 Compensation for incapacity for part-time Reservists (section 86) See section 51-33 Exempt 7 Compensation by way of Special Rate Disability Pension (section 200) Exempt Not applicable 8 Compensation under the Motor Vehicle Compensation Scheme (section 212) Exempt Not applicable 9 Compensation for household services and attendant care services (sections 214 and 217) Exempt Not applicable 10 MRCA supplement (sections 221, 245 and 300) Exempt Not applicable 11 Compensation for loss or damage to medical aids (section 226) Exempt Not applicable 12 Compensation for a wholly dependent partner for a member's death (section 233) Not applicable Exempt 13 Continuing permanent impairment and incapacity etc. compensation for a wholly dependent partner (subparagraphs 242(1)(a)(i) and (iii)) Not applicable Exempt 14 Compensation for eligible young persons who were dependent on deceased member (section 253) Not applicable Exempt 15 Continuing permanent impairment and incapacity etc. compensation for eligible young persons (subparagraphs 255(1)(c)(i) and (iii)) Not applicable Exempt 16 Education and training, or a payment, under the education scheme for certain eligible young persons (section 258) Exempt if provided for or made to a person under 16 Exempt 17 Compensation for other persons who were dependent on deceased member (section 262) Not applicable Exempt 18 Compensation for cost of a funeral (section 266) Not applicable Exempt 19 Compensation for treatment costs (sections 271, 272 and 273) Exempt Not applicable 21 Special assistance (section 424) Exempt Exempt INCOME TAX ASSESSMENT ACT 1997 - SECT 52.117 Payments of travelling expenses are exempt A payment made to you under Part 3 of the Australian Participants in British Nuclear Tests (Treatment) Act 2006 is exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.125 Private health insurance incentive payments are exempt A payment made to you under Division 26 of the Private Health Insurance Act 2007 is exempt from income tax. Guide to Subdivision 52-E INCOME TAX ASSESSMENT ACT 1997 - SECT 52.130 What this Subdivision is about This Subdivision tells you: (a) the payments under the ABSTUDY scheme that are wholly or partly exempt from income tax; and (b) any special circumstances, conditions or exceptions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 52-131 Payments under ABSTUDY scheme 52-132 Supplementary amounts of payments 52-133 Tax-free amount of ordinary payment on death of partner if no bereavement payment payable 52-134 Tax-free amount if you receive a bereavement lump sum payment Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 52.131 Payments under ABSTUDY scheme (1) This section tells you about the income tax treatment of a payment under the ABSTUDY scheme made in respect of a period commencing at a time when you were at least 16 years old. Note: The whole of a payment made under the ABSTUDY scheme in respect of a period commencing at a time when you are under 16 years old may be exempt under section 51-10. (2) A crisis payment made to you under the ABSTUDY scheme is exempt from income tax. (3) If: (a) an * ordinary payment becomes due to you; and (b) the payment is not covered by subsection (4) or (6); the * supplementary amount of the ordinary payment is exempt from income tax. Note: To work out the supplementary amount of the ordinary payment, see section 52-132. (4) If: (a) your partner dies; and (b) you do not qualify for a payment under the ABSTUDY scheme in respect of that death; and (c) an * ordinary payment becomes due to you during the bereavement period; the * supplementary amount and the *tax-free amount of the ordinary payment are exempt from income tax. Note 1: To work out the supplementary amount of the ordinary payment, see section 52-132. Note 2: To work out the tax-free amount of the ordinary payment, see section 52-133. (5) If a payment becomes due to you under the ABSTUDY scheme because of a person's death (except a lump sum payment because of your partner's death), the payment is exempt from income tax. (6) If: (a) your partner dies; and (b) a lump sum payment under the ABSTUDY scheme becomes due to you because of your partner's death; the total of the following are exempt from income tax up to the * tax free amount: (c) the lump sum payment; and (d) all other payments that become due to you under the ABSTUDY scheme during the bereavement lump sum period. Note: To work out the tax-free amount, see section 52-134. (7) ABSTUDY scheme means the scheme known as ABSTUDY. (8) Ordinary payment means a payment under the ABSTUDY scheme, other than: (a) a crisis payment; or (b) a payment made because of a person's death. (9) The following expressions used in this Subdivision have the same meaning as in the ABSTUDY Policy Manual: (a) bereavement lump sum period; (b) bereavement period; (c) illness separated couple; (d) lump sum payment; (e) partner; (f) pension age; (g) respite care couple. Note: In 2009, the ABSTUDY Policy Manual was accessible through the website of the Education Department. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.132 Supplementary amount of payment The * supplementary amount of a payment is the total of: (a) so much of the payment as is included to assist you with, or to reimburse you for, the costs of any one or more of the following: (i) rent; (ii) living in a remote area; (iii) commencing employment; (iv) travel to, or participation in, courses, interviews, education or training; (v) a child or children wholly or substantially dependent on you; (vi) telephone bills; (vii) living away from your usual residence; (viii) maintaining your usual residence while living away from that residence; (ix) accommodation, books or equipment; (xi) discharging a compulsory repayment amount (within the meaning of the Higher Education Support Act 2003); (xii) transport in travelling to undertake education or training, or to visit your usual residence when undertaking education or training away from that residence; (xiii) if you are disabled--acquiring any special equipment, services or transport as a result of the disability; (xiv) anything that would otherwise prevent you from beginning, continuing or completing any education or training; and (b) so much of the payment as is included by way of pharmaceutical allowance. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.133 Tax-free amount of ordinary payment on death of partner if no bereavement payment payable This is how to work out the tax-free amount of an * ordinary payment for the purposes of subsection 52-131(4): Method statement Step 1. Work out the * supplementary amount of the payment. Note: The supplementary amount is also exempt and is worked out under section 52-132. Step 2. Subtract the * supplementary amount from the amount of the payment. Step 3. Work out what would have been the amount of the payment if your partner had not died. Step 4. Work out what would have been the * supplementary amount of the payment if your partner had not died. Step 5. Subtract the amount at Step 4 from the amount at Step 3. Step 6. Subtract the amount at Step 5 from the amount at Step 2: the result is the tax-free amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.134 Tax-free amount if you receive a bereavement lump sum payment This is how to work out the tax-free amount for the purposes of subsection 52-131(6): Method statement Step 1. Work out the payments under the ABSTUDY scheme that would have become due to you during the bereavement lump sum period if: (a) your partner had not died; and (b) your partner had been under pension age; and (c) immediately before your partner died, you and your partner had been neither an illness separated couple nor a respite care couple. Step 2. Work out how much of those payments would have been exempt in those circumstances. Step 3. Work out the payments under the ABSTUDY scheme or the Social Security Act 1991 that would have become due to your partner during the bereavement lump sum period if your partner had not died, even if the payments would not have been exempt. Step 4. Total the payments worked out at Steps 2 and 3: the result is the tax-free amount. Table of sections 52-140 Supplementary amount of a Commonwealth education or training payment is exempt 52-145 Meaning of Commonwealth education or training payment INCOME TAX ASSESSMENT ACT 1997 - SECT 52.140 Supplementary amount of a Commonwealth education or training payment is exempt (1) This section tells you about the income tax treatment of a * Commonwealth education or training payment (other than a payment to or on behalf of a student under the scheme known as ABSTUDY). Note: The income tax treatment of payments under the scheme known as ABSTUDY is dealt with in Subdivision 52-E. (2) The * supplementary amount of the payment is exempt from income tax. (3) The supplementary amount is the total of: (a) so much of the payment as is included to assist you with, or to reimburse you for, the costs of any one or more of the following: (i) rent; (ii) living in a remote area; (iii) commencing employment; (iv) travel to, or participation in, courses, interviews, education or training; (v) a child or children wholly or substantially dependent on you; (vi) telephone bills; (vii) living away from your usual residence; (viii) maintaining your usual residence while living away from that residence; (ix) accommodation, books or equipment; (xa) discharging a compulsory repayment amount (within the meaning of the Higher Education Support Act 2003); (xi) transport in travelling to undertake education or training, or to visit your usual residence when undertaking education or training away from that residence; (xii) if you are disabled--acquiring any special equipment, services or transport as a result of the disability; (xiii) anything that would otherwise prevent you from beginning, continuing or completing any education or training; and (b) so much of the payment as is included by way of pharmaceutical allowance. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.145 Meaning of Commonwealth education or training payment (1) A Commonwealth education or training payment is a payment by the Commonwealth, or in connection with a payment by the Commonwealth, of an allowance or reimbursement: (a) to or on behalf of a participant in a * Commonwealth labour market program; or (b) to or on behalf of a student under: (i) the scheme known as ABSTUDY; or (ii) the scheme known as the Assistance for Isolated Children Scheme; or (iii) the scheme known as the Veterans' Children Education Scheme; or (iiia) the scheme under section 258 of the Military Rehabilitation and Compensation Act 2004 to provide education and training; or (iv) the scheme known as youth allowance; or (v) the scheme known as austudy payment; in respect of a period commencing at a time when the student was at least 16 years old. (2) A Commonwealth labour market program is a program administered by the Commonwealth under which: (a) unemployed persons are given training in skills to improve their employment prospects; or (b) unemployed persons are assisted in obtaining employment or to become self-employed; or (c) employed persons are given training in skills and other assistance to aid them in continuing to be employed by their current employer or in obtaining other employment. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.150 Family assistance payments are exempt (1) A payment of child care benefit, child care rebate, family tax benefit, baby bonus, maternity immunisation allowance, one-off payment to families, economic security strategy payment to families, back to school bonus or single income family bonus made to you under the A New Tax System (Family Assistance) (Administration) Act 1999 is exempt from income tax. (2) Payments to families under the scheme determined under Schedule 3 to the Family Assistance Legislation Amendment (More Help for Families--One-off Payments) Act 2004 are exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.160 Economic security strategy payments are exempt Payments under the scheme determined under Schedule 4 to the Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008 are exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.165 Household stimulus payments are exempt Payments under the scheme determined under Schedule 4 to the Household Stimulus Package Act (No. 2) 2009 are exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.170 Outer Regional and Remote payments under the Helping Children with Autism package are exempt Payments known as Outer Regional and Remote payments under the Helping Children with Autism package are exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.172 Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt Payments known as Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt from income tax. INCOME TAX ASSESSMENT ACT 1997 - SECT 52.175 Continence aids payments are exempt Payments under the scheme known as the Continence Aids Payment Scheme are exempt from income tax. Guide to Division 53 INCOME TAX ASSESSMENT ACT 1997 - SECT 53.1 What this Division is about This Division tells you: (a) about various payments that are wholly or partly exempt from income tax; and (b) any special conditions that apply to a payment in order for it to be exempt; and (c) how to work out how much of a payment is exempt. Table of sections Operative provisions 53-10 Exemption of various types of payments 53-15 Supplementary amount of exceptional circumstances relief payment or farm help income support 53-20 Exemption of similar Australian and United Kingdom veterans' payments Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 53.10 Exemption of various types of payments This table tells you about the income tax treatment of various types of payments. Exemption of various payments Item This type of payment: ... made under: ... is exempt subject to these exceptions and special conditions: 1 Carer adjustment payment The power of the Commonwealth to make ex-gratia payments None 2 Disability services payment Part III of the Disability Services Act 1986 None 3 Exceptional circumstances relief payment or farm help income support: payment made other than because of a person's death The Farm Household Support Act 1992 Only the supplementary amount is exempt (see section 53-15) 4 Exceptional circumstances relief payment or farm help income support: payment made because of a person's death Paragraph 49(b) of the Farm Household Support Act 1992 None 4B Sugar industry exit grant The program known as the Sugar Industry Reform Program As a condition of receiving the grant, you entered into an undertaking not to become the owner or operator of any agricultural * enterprise within 5 years after receiving the grant 4C Tobacco industry exit grant The program known as the Tobacco Growers Adjustment Assistance Programme 2006 As a condition of receiving the grant, you entered into an undertaking not to become the owner or operator of any agricultural * enterprise within 5 years after receiving the grant 5 Wounds and disability pension Not applicable The payment must be: (a) of a kind specified in subsection 315(2) of the Income and Corporation Taxes Act 1988 of the United Kingdom; and (b) similar in nature to payments that are exempt under Division 52 or this Division Note 1: References in this section to exceptional circumstances relief payment also cover amounts paid as drought relief payment--see item 4 of Schedule 3 to the Farm Household Support Amendment (Restart and Exceptional Circumstances) Act 1997. Note 2: A sugar industry exit grant referred to in table item 4B is included in assessable income if the recipient becomes the owner or operator of an agricultural enterprise (except a sugar industry enterprise) within 5 years after receiving the grant: see subsection 15-65(2). INCOME TAX ASSESSMENT ACT 1997 - SECT 53.15 Supplementary amount of exceptional circumstances relief payment or farm help income support The supplementary amount of an exceptional circumstances relief payment or a payment of farm help income support is the total of: (a) so much of the payment as is included by way of rent assistance; and (b) so much of the payment as would have been included by way of remote area allowance if it had been a payment of newstart allowance under the Social Security Act 1991 instead of an exceptional circumstances relief payment or a payment of farm help income support; INCOME TAX ASSESSMENT ACT 1997 - SECT 53.20 Exemption of similar Australian and United Kingdom veterans' payments The following payments made by the Government of Australia, or the Government of the United Kingdom, are exempt from income tax: (a) payments similar to payments under the Veterans' Entitlements Act 1986 that are exempt under Subdivision 52-B; (b) payments similar to payments that are made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 and are exempt under Subdivision 52-C. Table of Subdivisions Guide to Division 54 54-A Definitions 54-B Tax exemption for personal injury annuities 54-C Tax exemption for personal injury lump sums 54-D Miscellaneous Guide to Division 54 INCOME TAX ASSESSMENT ACT 1997 - SECT 54.1 What this Division is about Certain annuities and lump sums provided under structured settlements and structured orders are exempt from income tax. This Division tells you what a structured settlement is and what a structured order is, and when such an annuity or lump sum is exempt. Table of sections Operative provisions 54-5 Definitions 54-10 Meaning of structured settlement and structured order Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 54.5 Definitions In this Division: "date of the settlement or order": (a) for a * structured settlement, means: (i) the date on which the agreement that is the structured settlement was entered into; or (ii) if that agreement depends, for its effectiveness, on being approved (however described) by an order of a court, or on being embodied in a consent order made by a court, the date on which that order was made; and (b) for a * structured order, means the date on which the order was made. "personal injury annuity" means an * annuity: (a) that is purchased under the terms of a * structured settlement as mentioned in paragraph 54-10(1)(e); or (b) that is purchased under the terms of a * structured order as mentioned in paragraph 54-10(1A)(e). "personal injury lump sum" means a lump sum: (a) that is purchased under the terms of a * structured settlement as mentioned in paragraph 54-10(1)(e); or (b) that is purchased under the terms of a * structured order as mentioned in paragraph 54-10(1A)(e). INCOME TAX ASSESSMENT ACT 1997 - SECT 54.10 Meaning of structured settlement and structured order (1) A structured settlement is a settlement of a claim that satisfies the following conditions: (a) the claim: (i) is for compensation or damages for, or in respect of, personal injury suffered by a person (the injured person); and (ii) is made by the injured person or by his or her * legal personal representative; (b) the claim is based on the commission of a wrong, or on a right created by statute; (c) the claim is made against a person (the defendant) and satisfies the following conditions: (i) the claim is not made against the defendant in his or her capacity as an employer, or * associate of an employer, of the injured person; (ii) the claim is not made under a *workers' compensation law, and is not made as an alternative to a claim under such a law; (d) the settlement takes the form of a written agreement between the parties to the claim (whether or not that agreement is approved by an order of a court, or is embodied in a consent order made by a court); (e) under the terms of the settlement, some or all of the compensation or damages is to be used by the defendant (or by a person with whom the defendant has insurance against the liability to which the claim relates) to purchase from one or more * life insurance companies or *State insurers: (i) an * annuity or annuities to be paid to the injured person, or to a trustee for the benefit of the injured person; or (ii) such an annuity or annuities, together with one or more lump sums that are also to be paid to the injured person, or to a trustee for the benefit of the injured person. (1A) A structured order is an order of a court that satisfies the following conditions: (a) the order is made in respect of a claim that: (i) is for compensation or damages for, or in respect of, personal injury suffered by a person (the injured person); and (ii) is made by the injured person or by his or her * legal personal representative; (b) the order is not an order approving or endorsing an agreement as mentioned in paragraph (1)(d); (c) the claim is based on the commission of a wrong, or on a right created by statute; (d) the claim is made against a person (the defendant) and satisfies the following conditions: (i) the claim is not made against the defendant in his or her capacity as an * employer, or *associate of an employer, of the injured person; (ii) the claim is not made under a * workers' compensation law, and is not made as an alternative to a claim under such a law; (e) under the terms of the order, some or all of the compensation or damages is to be used by the defendant (or by a person with whom the defendant has insurance against the liability to which the claim relates) to purchase from one or more * life insurance companies or *State insurers: (i) an * annuity or annuities to be paid to the injured person, or to a trustee for the benefit of the injured person; or (ii) such an annuity or annuities, together with one or more lump sums that are also to be paid to the injured person, or to a trustee for the benefit of the injured person. (3) If a claim is both: (a) for compensation or damages for personal injury suffered by a person; and (b) for some other remedy (for example, compensation or damages for loss of, or damage to, property); this section applies to the claim, but only to the extent that it relates to the compensation or damages referred to in paragraph (a), and only to annuities or lump sums that, in the settlement agreement, or in the order, are identified as being solely in payment of that compensation or those damages. Table of sections Operative provisions 54-15 Personal injury annuity exemption for injured person 54-20 Lump sum compensation etc. would not have been assessable 54-25 Requirements of the annuity instrument 54-30 Requirements for payments of the annuity 54-35 Payments during the guarantee period on the death of the injured person 54-40 Requirement for minimum monthly level of support Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 54.15 Personal injury annuity exemption for injured person A payment of a * personal injury annuity that is made to the * injured person is exempt from income tax if the conditions in this Subdivision are satisfied. Note: Section 54-70 provides a tax exemption if the payment is instead made to the trustee of a trust. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.20 Lump sum compensation etc. would not have been assessable If the compensation or damages that were used to purchase the * annuity had instead been paid to the * injured person in a single lump sum on the *date of the settlement or order, the compensation or damages would not have been assessable income. Note: Paragraph 118-37(1)(b) disregards a capital gain or capital loss that arises from compensation or damages the injured person receives for any wrong he or she suffers personally. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.25 Requirements of the annuity instrument The * annuity instrument must: (a) identify the * structured settlement or * structured order under which the * annuity is provided; and (b) only allow for payments of the annuity to be made to: (i) the injured person; or (ii) a trustee of a trust of which the injured person is the beneficiary; or (iii) a reversionary beneficiary, or the injured person's estate, in accordance with section 54-35; and (c) contain a statement to the effect that the annuity cannot be assigned, and cannot be commuted except as mentioned in section 54-35. Note: Division 2A of Part 10 of the Life Insurance Act 1995 makes a purported assignment or commutation that is contrary to paragraph (c) ineffective. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.30 Requirements for payments of the annuity (1) The * annuity instrument must provide that payments of the * annuity are to be made at least annually: (a) over a period of at least 10 years during the life of the * injured person; or (b) for the life of the injured person. (2) The * annuity instrument must specify: (a) the date of the first payment of the * annuity; and (b) if the annuity instrument specifies a period of years--the date of the last payment in that period; and (c) the amount of each periodic payment of the annuity. (3) The * annuity instrument may only allow the amount of a payment to be varied by increasing the amount: (a) in order to maintain its real value: (i) by indexation by reference to increases in the * All Groups Consumer Price Index number; or (ii) by indexation by reference to increases in the full-time adult average weekly ordinary time earnings, published by the Australian Statistician; or (b) by a percentage specified in the annuity instrument. (4) The * annuity instrument may only allow the amount of a particular payment to be varied: (a) by only one of the methods referred to in subsection (3); or (b) by whichever of 2 or more of those methods would result in the biggest or smallest increase. (5) A reference in this section to specifying a date or percentage requires an actual date or figure to be specified, not merely a method of determining a date or figure. Example: Under subsection (2), "13 September 2002" would be allowed, but "The date on which the annuitant finishes university" would not be allowed. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.35 Payments during the guarantee period on the death of the injured person (1) This section applies if the * annuity instrument provides for payments to be made to the * injured person during any part of the period ending 10 years after the * date of the settlement or order (whether the *annuity is expressed to be for the life of the person or for a period of years). (2) The * annuity instrument may specify a period (the guarantee period) of up to 10 years after the * date of the settlement or order, during which, if the * injured person dies, the payments (the remaining payments) for the remainder of the guarantee period that would have been paid to the injured person are to be paid instead to: (a) the injured person's estate; or (b) a reversionary beneficiary. Note: For tax exemptions in this situation, see sections 54-65 and 54-70. (3) If the * annuity instrument provides for the remaining payments to be made to a reversionary beneficiary, the instrument must: (a) name the beneficiary; and (b) allow the beneficiary to choose either: (i) to be paid the amounts of the remaining payments when the injured person would have received them; or (ii) to commute those payments into a lump sum worked out under subsection (5). (4) The * injured person's estate may only be paid the lump sum worked out under subsection (5) (and not the periodic payments). (5) The amount of the lump sum under subparagraph (3)(b)(ii) or subsection (4) is the * policy termination value of the *life insurance policy that is the *annuity instrument, as calculated by an * actuary as at the date of the injured person's death. In making this calculation, the following are to be disregarded: (a) any payments of the annuity due to be made after the end of the guarantee period; (b) any * structured settlement lump sums that are also provided for by that policy. (6) In this section: "pay to a person" includes pay to the trustee of a trust of which the person is the beneficiary. "pay to the injured person's estate" includes pay to the trustee of a trust established by the * injured person's will. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.40 Requirement for minimum monthly level of support (1) Either: (a) the * annuity instrument must provide; or (b) if there is more than one * annuity provided under the * structured settlement or * structured order--the annuity instruments for all of those annuities that satisfy the other conditions in this Subdivision, taken as a whole, must provide; that at least once a month for the life of the * injured person, he or she is to be paid an amount that equals or exceeds the minimum monthly level of support. (2) The minimum monthly level of support means: (a) for the year starting on the * date of the settlement or order--one twelfth of the amount that is, on that date, the sum of: (i) the maximum basic rate of age pension payable to a person in accordance with item 1 of Table B in point 1064-B1 of Pension Rate Calculator A in section 1064 of the Social Security Act 1991; and (ii) the amount of a person's pension supplement, worked out (using that maximum basic rate) in accordance with Module BA of that Pension Rate Calculator; and (b) for any subsequent year starting on an anniversary of the date of the settlement or order: (i) if the indexation factor for the year (see subsection (3)) is greater than 1--the amount worked out under subsection (4); or (ii) otherwise--the minimum monthly level of support for the previous year. Note: In working out the rate and amount that count for the purposes of paragraph (a), the effect of the indexation provisions in sections 1191 to 1195 of the Social Security Act 1991 must be taken into account. The indexed figures are available from the Department administered by the Minister administering the Human Services (Centrelink) Act 1997. (3) The indexation factor for a year is to be worked out on the anniversary of the * date of the settlement or order in accordance with the formula: where: "base year" means: (a) if there have been one or more previous years for which the indexation factor was greater than 1--the year ending immediately before the most recent year for which the indexation factor was greater than 1; or (b) otherwise--the year ending immediately before the * date of the settlement or order. Note: This has effect subject to subsection (6). (4) If the indexation factor for a year is greater than 1, then the minimum monthly level of support for the year is the amount worked out in accordance with the following formula: (5) The results under subsections (3) and (4) must be rounded to 3 decimal places (rounding up if the fourth decimal place is 5 or more). (6) The indexation factor for a year must be worked out by reference to figures for the same * quarter (for example, the March quarter) as has been used in previous years, even if, on the anniversary of the * date of the settlement or order, the * All Groups Consumer Price Index number for that quarter has not yet been published. If this happens, the calculation must be made as soon as practicable after the number for that quarter is published. (7) In this section: "pay to a person" includes pay to the trustee of a trust of which the person is the beneficiary. Table of sections Operative provisions 54-45 Personal injury lump sum exemption for injured person 54-50 Lump sum compensation would not have been assessable 54-55 Requirements of the instrument under which the lump sum is paid 54-60 Requirements for payments of the lump sum Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 54.45 Personal injury lump sum exemption for injured person A payment of a * personal injury lump sum that is made to the * injured person is exempt from income tax if: (a) there is at least one * personal injury annuity (provided under the same * structured settlement or *structured order) that satisfies the conditions in Subdivision 54-B; and (b) the other conditions in this Subdivision are satisfied. Note: Section 54-70 provides a tax exemption if the payment is instead made to the trustee of a trust. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.50 Lump sum compensation would not have been assessable If the compensation or damages that were used to purchase the * personal injury lump sum had instead been paid to the * injured person on the *date of the settlement or order, the compensation or damages would not have been assessable income. Note: Paragraph 118-37(1)(b) disregards a capital gain or capital loss that arises from compensation or damages the injured person receives for any wrong he or she suffers personally. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.55 Requirements of the instrument under which the lump sum is paid The instrument under which the * personal injury lump sum is paid must: (a) identify the * structured settlement or * structured order under which the lump sum is provided; and (b) only allow for the payment of the lump sum to be made to: (i) the * injured person; or (ii) a trustee of a trust of which the injured person is the beneficiary; and (c) contain a statement to the effect that the right to receive the lump sum cannot be assigned, and cannot be commuted or otherwise cashed-out early. Note: Division 2A of Part 10 of the Life Insurance Act 1995 makes a purported assignment or commutation (or cashing-out) that is contrary to paragraph (c) ineffective. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.60 Requirements for payments of the lump sum (1) The instrument under which the * personal injury lump sum is paid must specify the date and amount of the payment of the lump sum. (2) The instrument may only allow the amount of the payment to be varied by increasing the amount: (a) in order to maintain its real value: (i) by indexation by reference to increases in the * All Groups Consumer Price Index number; or (ii) by indexation by reference to increases in the full-time adult average weekly ordinary time earnings, published by the Australian Statistician; or (b) by a percentage specified in the instrument. (3) The instrument may only allow the amount of the payment to be varied: (a) by only one of the methods referred to in subsection (2); or (b) by whichever of 2 or more of those methods would result in the biggest or smallest increase. (4) A reference in this section to specifying a date or percentage requires an actual date or figure to be specified, not merely a method of determining a date or figure. Example: Under subsection (1), "13 September 2002" would be allowed, but "The date on which the annuitant finishes university" would not be allowed. Table of sections Operative provisions 54-65 Exemption for certain payments to reversionary beneficiaries 54-70 Special provisions about trusts 54-75 Minister to arrange for review and report Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 54.65 Exemption for certain payments to reversionary beneficiaries A payment that is made to the reversionary beneficiary of a * personal injury annuity for which there is a *guarantee period is exempt from income tax if: (a) the payment is a periodic or lump sum payment made in accordance with subsection 54-35(3); and (b) either: (i) if subparagraph 54-35(3)(b)(i) applies--the payment; or (ii) if subparagraph 54-35(3)(b)(ii) applies--each of the payments taken into account in working out the amount of the lump sum under subsection 54-35(5); would be exempt from income tax under this Division if the * injured person were still alive and the payment, or each of the payments, were instead made to the injured person. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.70 Special provisions about trusts (1) A payment of a * personal injury annuity or a *personal injury lump sum to the trustee of a trust is exempt from income tax for the trustee if: (a) the beneficiary of the trust is the * injured person; and (b) because of Subdivision 54-B or 54-C, the payment would have been exempt from income tax if it had been made directly to the beneficiary. (2) A payment made in accordance with paragraph 54-35(3)(b) to the trustee of a trust is exempt from income tax for the trustee if: (a) the beneficiary of the trust is the reversionary beneficiary; and (b) because of section 54-65, the payment would have been exempt from income tax if it had been made directly to the beneficiary. (3) A payment of a lump sum in accordance with subsection 54-35(4) to the trustee of a trust is exempt from income tax for the trustee. (4) If a payment is exempt from income tax for a trustee because of this section, the payment is also exempt from income tax for a beneficiary, or the beneficiary, of the trust, even if the trustee: (a) pays all or part of the payment to the beneficiary; or (b) applies all or part of the payment for the benefit of the beneficiary. INCOME TAX ASSESSMENT ACT 1997 - SECT 54.75 Minister to arrange for review and report (1) The Minister must cause a person to review, and to report to the Minister in writing about, the operation of the following provisions (the structured settlements and orders provisions): (a) the other provisions of this Division; (b) Division 2A of Part 10 of the Life Insurance Act 1995. (2) The person must be someone who, in the Minister's opinion, is suitably qualified and appropriate to conduct the review. (3) The review and report must relate to the period beginning when this Division commences and ending after 4 years and 6 months. (4) The person must give the report to the Minister as soon as practicable, and in any event within 6 months, after the end of that period. (5) The report may include suggestions for changes to the structured settlements and orders provisions that, in the person's opinion, are needed to overcome, or would help overcome, problems identified during the review and set out in the report. (6) The person must provide a reasonable opportunity for members of the public to make submissions to him or her about matters to which the review relates. (7) The Minister must cause a copy of the report to be laid before each House of the Parliament within 15 sitting days of that House after the Minister receives the report. Guide to Division 55 INCOME TAX ASSESSMENT ACT 1997 - SECT 55.1 What this Division is about A variety of payments are not exempt from income tax even though they are similar in nature to payments that are wholly or partly exempt under this Part. Table of sections Operative provisions 55-5 Occupational superannuation payments 55-10 Education entry payments Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 55.5 Occupational superannuation payments (1) This Part does not exempt from income tax any amount or pension paid under the following provisions or Acts, or under schemes established under any of them: (a) Defence Force Retirement and Death Benefits Act 1973; (b) Defence Forces Retirement Benefits Act 1948; (c) Military Superannuation and Benefits Act 1991; (d) Papua New Guinea (Staffing Assistance) Act 1973; (e) Parliamentary Contributory Superannuation Act 1948; (f) section 10 of the Superannuation (Pension Increases) Act 1971; (g) section 9 or 14 of the Superannuation Act (No. 2) 1956; (h) subsection 8(1) of the Superannuation Act 1948; (i) Superannuation Act 1922; (j) Superannuation Act 1976; (k) Superannuation Act 1990; (l) Superannuation Act 2005. (2) This section operates despite anything contained in any other provision of this Part. INCOME TAX ASSESSMENT ACT 1997 - SECT 55.10 Education entry payments This Part does not exempt from income tax an education entry payment under Part 2.13A of the Social Security Act 1991. Contents Chapter 2--Liability rules of general application i Part 2-15--Non-assessable income i Division 58--Capital allowances for depreciating assets previously owned by an exempt entity 1 Guide to Division 58 1 58-1....... What this Division is about................................................................. 1 Subdivision 58-A--Application 1 58-5....... Application of Division....................................................................... 2 58-10..... When an asset is acquired in connection with the acquisition of a business 3 Subdivision 58-B--Calculating decline in value of privatised assets under Division 40 4 58-60..... Purpose of rules in this Subdivision................................................... 5 58-65..... Choice of method to work out cost of privatised asset........................ 5 58-70..... Application of Division 40.................................................................. 5 58-75..... Meaning of notional written down value............................................. 6 58-80..... Meaning of undeducted pre-existing audited book value.................... 8 58-85..... Pre-existing audited book value of depreciating asset......................... 9 58-90..... Method and effective life for transition entity.................................... 10 Division 59--Particular amounts of non-assessable non-exempt income 11 Guide to Division 59 11 59-1....... What this Division is about............................................................... 11 Operative provisions 11 59-10..... Compensation under firearms surrender arrangements..................... 11 59-15..... Mining payments.............................................................................. 12 59-20..... Taxable amounts relating to franchise fees windfall tax.................... 12 59-25..... Taxable amounts relating to Commonwealth places windfall tax...... 12 59-30..... Amounts you must repay.................................................................. 13 59-35..... Amounts that would be mutual receipts but for prohibition on distributions to members 13 59-40..... Issue of rights................................................................................... 13 59-45..... Tax bonus for the 2007-08 income year............................................ 14 59-55..... 2010-11 floods--recovery grants for small businesses and primary producers 14 59-60..... Cyclone Yasi--recovery grants for small businesses and primary producers 15 Part 2-20--Tax offsets 16 Division 61--Generally applicable tax offsets 16 Subdivision 61-G--Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 16 Guide to Subdivision 61-G 16 61-200... What this Subdivision is about.......................................................... 16 Operative provisions 17 61-205... Entitlement to the private health insurance tax offset......................... 17 61-210... Amount of the private health insurance tax offset............................. 18 61-215... Tax offset after a person 65 years or over ceases to be covered by policy 19 61-220... How to work out the incentive amount............................................. 20 Subdivision 61-I--First child tax offset (baby bonus) 21 Guide to Subdivision 61-I 21 61-350... What this Subdivision is about.......................................................... 21 Entitlement to a first child tax offset 22 61-355... Who is entitled to a tax offset under this section............................... 22 61-360... What is a child event?........................................................................ 23 61-365... First child only.................................................................................. 24 61-370... Another carer with entitlement for another child............................... 24 61-375... Selection rules................................................................................... 24 61-380... Special rules for death of first child................................................... 25 Transferring an entitlement 25 61-385... You may transfer your entitlement to a tax offset.............................. 25 61-390... Transfer is irrevocable....................................................................... 26 61-395... Transferor is not entitled to tax offset................................................ 26 61-400... Transferee is entitled to tax offset...................................................... 26 Claiming a first child tax offset 26 61-405... How to claim a tax offset for a child................................................. 26 61-410... Claim is irrevocable........................................................................... 26 Amount of a first child tax offset 27 61-415... Formula for working out amount of tax offset.................................. 27 61-420... Component of formula--entitlement amount.................................... 27 61-425... Component of formula--total of the entitlement days....................... 28 61-430... What is your base year?.................................................................... 28 Additional tax offset if a child is in your care before you legally adopt the child 29 61-440... Additional tax offset if a child is in your care before you legally adopt the child 29 61-445... When a child is first in your care....................................................... 30 61-450... What is your base year if a child is in your care before you legally adopt the child? 30 61-455... Old Subdivision applies if you would be worse off.......................... 31 Subdivision 61-IA--Child care tax offset 32 Guide to Subdivision 61-IA 32 61-460... What this Subdivision is about.......................................................... 32 Operative provisions 33 61-465... Object of this Subdivision................................................................. 33 Entitlement to the child care tax offset 33 61-470... Who is entitled to the tax offset......................................................... 33 61-475... Meaning of approved child care....................................................... 34 61-480... Meaning of entitled to child care benefit and entitlement to child care benefit 34 Amount of the child care tax offset 36 61-485... Amount of the child care tax offset................................................... 36 61-490... Component of formula--approved child care fees........................... 37 61-495... Component of formula--child care offset limit................................. 38 Transfer of entitlement to unused balance of child care tax offset 38 61-496... Entitlement to transfer....................................................................... 38 61-497... Form of transfer................................................................................ 39 Subdivision 61-J--25% entrepreneurs' tax offset 39 Guide to Subdivision 61-J 39 61-500... What this Subdivision is about.......................................................... 39 Operative provisions 40 61-505... 25% entrepreneurs' tax offset: individual or company...................... 40 61-510... 25% entrepreneurs' tax offset: partner in a partnership..................... 42 61-515... 25% entrepreneurs' tax offset: trustee of a trust................................ 44 61-520... 25% entrepreneurs' tax offset: beneficiary of a trust......................... 45 61-523... 25% entrepreneurs' tax offset--reduction for non-small business income 47 61-525... Meaning of net small business income and small business entity turnover 48 Subdivision 61-K--Mature age worker tax offset 49 Guide to Subdivision 61-K 49 61-550... What this Subdivision is about.......................................................... 49 Operative provisions 49 61-555... Object of this Subdivision................................................................. 49 61-560... Entitlement to the mature age worker tax offset................................. 50 61-565... The amount of the tax offset.............................................................. 50 61-570... Definition of net income from working............................................. 50 Subdivision 61-L--Tax offset for Medicare levy surcharge (lump sum payments in arrears) 51 Guide to Subdivision 61-L 51 61-575... What this Subdivision is about.......................................................... 51 Operative provisions 52 61-580... Entitlement to a tax offset.................................................................. 52 61-585... The amount of a tax offset................................................................. 54 61-590... Definition of MLS lump sums........................................................... 54 Subdivision 61-M--Education expenses tax offset 55 Guide to Subdivision 61-M 55 61-600... What this Subdivision is about.......................................................... 55 Entitlement to education expenses tax offset 56 61-610... Entitlement to education expenses tax offset..................................... 56 61-620... Eligibility in respect of another individual......................................... 57 61-630... Schooling requirement...................................................................... 58 61-640... Education expenses........................................................................... 60 Amount of education expenses tax offset 62 61-650... Amount of education expenses tax offset.......................................... 62 61-660... Education expenses tax offset limit................................................... 63 61-670... Shared care........................................................................................ 64 61-680... Excess education expenses................................................................ 66 Division 63--Common rules for tax offsets 68 Guide to Division 63 68 63-1....... What this Division is about............................................................... 68 63-10..... Priority rules..................................................................................... 68 Division 65--Tax offset carry forward rules 71 Guide to Division 65 71 65-10..... What this Division is about............................................................... 71 Operative provisions 71 65-30..... Amount carried forward.................................................................... 71 65-35..... How to apply carried forward tax offsets.......................................... 72 65-40..... When a company cannot apply a tax offset....................................... 72 65-50..... Effect of bankruptcy.......................................................................... 73 65-55..... Deduction for amounts paid for debts incurred before bankruptcy... 73 Division 67--Refundable tax offset rules 75 Guide to Division 67 75 67-10..... What this Division is about............................................................... 75 Operative provisions 75 67-20..... Which tax offsets this Division applies to......................................... 75 67-23..... Refundable tax offsets....................................................................... 75 67-25..... Refundable tax offsets--franked distributions.................................. 76 67-30..... Refundable tax offsets--R&D.......................................................... 78 Part 2-25--Trading stock 80 Division 70--Trading stock 80 Guide to Division 70 80 70-1....... What this Division is about............................................................... 80 70-5....... The 3 key features of tax accounting for trading stock...................... 81 Subdivision 70-A--What is trading stock 81 70-10..... Meaning of trading stock.................................................................. 81 Subdivision 70-B--Acquiring trading stock 82 70-15..... In which income year do you deduct an outgoing for trading stock? 82 70-20..... Non-arm's length transactions.......................................................... 83 70-25..... Cost of trading stock is not a capital outgoing................................... 83 70-30..... Starting to hold as trading stock an item you already own................ 83 Subdivision 70-C--Accounting for trading stock you hold at the start or end of the income year 86 General rules 87 70-35..... You include the value of your trading stock in working out your assessable income and deductions 87 70-40..... Value of trading stock at start of income year................................... 87 70-45..... Value of trading stock at end of income year.................................... 87 Special valuation rules 89 70-50..... Valuation if trading stock obsolete etc............................................... 89 70-55..... Working out the cost of natural increase of live stock....................... 89 70-60..... Valuation of horse breeding stock..................................................... 89 70-65..... Working out the horse opening value and the horse reduction amount 90 Subdivision 70-D--Assessable income arising from disposals of trading stock and certain other assets 91 Guide to Subdivision 70-D 91 70-75..... What this Subdivision is about.......................................................... 91 70-80..... Why the rules in this Subdivision are necessary............................... 92 Operative provisions 92 70-85..... Application of this Subdivision to certain other assets...................... 92 70-90..... Assessable income on disposal of trading stock outside the ordinary course of business 93 70-95..... Purchase price is taken to be market value........................................ 93 70-100... Notional disposal when you stop holding an item as trading stock... 94 70-105... Death of owner................................................................................. 96 70-110... You stop holding an item as trading stock but still own it................. 97 70-115... Compensation for lost trading stock.................................................. 98 Subdivision 70-E--Miscellaneous 98 70-120... Deducting capital costs of acquiring trees......................................... 98 Part 2-40--Rules affecting employees and other taxpayers receiving PAYG withholding payments 101 Division 80--General rules 101 Guide to Division 80 101 80-1....... What this Division is about............................................................. 101 Operative provisions 101 80-5....... Holding of an office........................................................................ 101 80-10..... Application to the termination of employment................................. 102 80-15..... Transfer of property........................................................................ 102 80-20..... Payments for your benefit or at your direction or request............... 102 Division 82--Employment termination payments 104 Guide to Division 82 104 82-1....... What this Division is about............................................................. 104 Subdivision 82-A--Employment termination payments: life benefits 104 Guide to Subdivision 82-A 104 82-5....... What this Subdivision is about........................................................ 104 Operative provisions 105 82-10..... Taxation of life benefit termination payments.................................. 105 Subdivision 82-B--Employment termination payments: death benefits 106 Guide to Subdivision 82-B 106 82-60..... What this Subdivision is about........................................................ 106 Operative provisions 107 82-65..... Death benefits for dependants......................................................... 107 82-70..... Death benefits for non-dependants.................................................. 108 82-75..... Death benefits paid to trustee of deceased estate............................. 109 Subdivision 82-C--Key concepts 110 Guide to Subdivision 82-C 110 82-125... What this Subdivision is about........................................................ 110 Operative provisions 111 82-130... What is an employment termination payment?................................ 111 82-135... Payments that are not employment termination payments............... 112 82-140... Tax free component of an employment termination payment.......... 114 82-145... Taxable component of an employment termination payment........... 114 82-150... What is an invalidity segment of an employment termination payment? 114 82-155... What is a pre-July 83 segment of an employment termination payment? 115 82-160... What is the ETP cap amount?......................................................... 116 Division 83--Other payments on termination of employment 117 Guide to Division 83 117 83-1....... What this Division is about............................................................. 117 Subdivision 83-A--Unused annual leave payments 117 Guide to Subdivision 83-A 117 83-5....... What this Subdivision is about........................................................ 117 Operative provisions 118 83-10..... Unused annual leave payment is assessable.................................... 118 83-15..... Entitlement to tax offset................................................................... 119 Subdivision 83-B--Unused long service leave payments 119 Guide to Subdivision 83-B 119 83-65..... What this Subdivision is about........................................................ 119 General 120 83-70..... Application--long service leave...................................................... 120 83-75..... Meaning of unused long service leave payment.............................. 120 83-80..... Taxation of unused long service leave payments............................. 121 83-85..... Entitlement to tax offset................................................................... 121 83-90..... Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period........................................................................................................ 122 Employment wholly full-time or wholly part-time 123 83-95..... How to work out amount of payment attributable to each period.... 123 83-100... How to work out unused days of long service leave for each period 124 83-105... How to work out long service leave accrued in each period............ 125 Employment partly full-time and partly part-time 126 83-110... Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods--employment full-time and part-time 126 Long service leave taken at less than full pay 126 83-115... Working out used days of long service leave if leave taken at less than full pay 126 Subdivision 83-C--Genuine redundancy payments and early retirement scheme payments 127 Guide to Subdivision 83-C 127 83-165... What this Subdivision is about........................................................ 127 Operative provisions 128 83-170... Tax-free treatment of genuine redundancy payments and early retirement scheme payments 128 83-175... What is a genuine redundancy payment?........................................ 129 83-180... What is an early retirement scheme payment?................................ 130 Subdivision 83-D--Foreign termination payments 131 Guide to Subdivision 83-D 131 83-230... What this Subdivision is about........................................................ 131 Operative provisions 132 83-235... Termination payments tax free--foreign resident period................. 132 83-240... Termination payments tax free--Australian resident period............ 132 Subdivision 83-E--Other payments 133 Guide to Subdivision 83-E 133 83-290... What this Subdivision is about........................................................ 133 Operative provisions 134 83-295... Termination payments made more than 12 months after termination etc. 134 Division 83A--Employee share schemes 135 Guide to Division 83A 135 83A-1.... What this Division is about............................................................. 135 Subdivision 83A-A--Objects of Division and key concepts 135 83A-5.... Objects of Division......................................................................... 136 83A-10.. Meaning of ESS interest and employee share scheme..................... 136 Subdivision 83A-B--Immediate inclusion of discount in assessable income 137 Guide to Subdivision 83A-B 137 83A-15.. What this Subdivision is about........................................................ 137 Operative provisions 138 83A-20.. Application of Subdivision............................................................. 138 83A-25.. Discount to be included in assessable income................................. 138 83A-30.. Amount for which discounted ESS interest acquired...................... 138 83A-35.. Reduction of amounts included in assessable income..................... 139 Subdivision 83A-C--Deferred inclusion of gain in assessable income 142 Guide to Subdivision 83A-C 142 83A-100 What this Subdivision is about........................................................ 142 Main provisions 143 83A-105 Application of Subdivision............................................................. 143 83A-110 Amount to be included in assessable income.................................. 145 83A-115 ESS deferred taxing point--shares................................................. 146 83A-120 ESS deferred taxing point--rights to acquire shares....................... 147 83A-125 Tax treatment of ESS interests held after ESS deferred taxing points 148 Takeovers and restructures 149 83A-130 Takeovers and restructures.............................................................. 149 Subdivision 83A-D--Deduction for employer 151 Guide to Subdivision 83A-D 151 83A-200 What this Subdivision is about........................................................ 151 Operative provisions 152 83A-205 Deduction for employer.................................................................. 152 83A-210 Timing of general deductions.......................................................... 153 Subdivision 83A-E--Miscellaneous 153 83A-305 Acquisition by associates................................................................ 153 83A-310 Forfeiture etc. of ESS interest......................................................... 154 83A-315 Market value of ESS interest........................................................... 155 83A-320 Interests in a trust............................................................................ 155 83A-325 Application of Division to relationships similar to employment...... 156 83A-330 Application of Division to ceasing employment.............................. 156 83A-335 Application of Division to stapled securities................................... 157 83A-340 Application of Division to indeterminate rights............................... 157 Part 2-42--Personal services income 159 Division 84--Introduction 159 Guide to Part 2-42 159 84-1....... What this Part is about.................................................................... 159 Operative provisions 159 84-5....... Meaning of personal services income............................................. 159 84-10..... This Part does not imply that individuals are employees................. 160 Division 85--Deductions relating to personal services income 161 Guide to Division 85 161 85-1....... What this Division is about............................................................. 161 Operative provisions 161 85-5....... Object of this Division.................................................................... 161 85-10..... Deductions for non-employees relating to personal services income 162 85-15..... Deductions for rent, mortgage interest, rates and land tax............... 163 85-20..... Deductions for payments to associates etc...................................... 163 85-25..... Deductions for superannuation for associates................................. 163 85-30..... Exception: personal services businesses......................................... 164 85-35..... Exception: employees, office holders and religious practitioners.... 164 85-40..... Application of Subdivision 900-B to individuals who are not employees 165 Division 86--Alienation of personal services income 166 Guide to Division 86 166 86-1....... What this Division is about............................................................. 166 86-5....... A simple description of what this Division does............................. 166 Subdivision 86-A--General 168 86-10..... Object of this Division.................................................................... 168 86-15..... Effect of obtaining personal services income through a personal services entity 168 86-20..... Offsetting the personal services entity's deductions against personal services income 169 86-25..... Apportionment of entity maintenance deductions among several individuals 171 86-27..... Deduction for net personal services income loss............................. 173 86-30..... Assessable income etc. of the personal services entity.................... 173 86-35..... Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 173 86-40..... Salary payments shortly after an income year................................. 174 Subdivision 86-B--Entitlement to deductions 175 86-60..... General rule for deduction entitlements of personal services entities 175 86-65..... Entity maintenance deductions........................................................ 176 86-70..... Car expenses................................................................................... 176 86-75..... Superannuation............................................................................... 177 86-80..... Salary or wages promptly paid........................................................ 178 86-85..... Deduction entitlements of personal services entities for amounts included in an individual's assessable income 178 86-87..... Personal services entity cannot deduct net personal services income loss 179 86-90..... Application of Divisions 28 and 900 to personal services entities.. 179 Division 87--Personal services businesses 180 Guide to Division 87 180 87-1....... What this Division is about............................................................. 180 87-5....... Diagram showing the operation of this Division............................. 181 Subdivision 87-A--General 183 87-10..... Object of this Division.................................................................... 183 87-15..... What is a personal services business?............................................. 183 87-18..... The results test for a personal services business............................. 185 87-20..... The unrelated clients test for a personal services business.............. 186 87-25..... The employment test for a personal services business.................... 187 87-30..... The business premises test for a personal services business........... 187 87-35..... Personal services income from Australian government agencies.... 188 87-40..... Application of this Division to certain agents.................................. 189 Subdivision 87-B--Personal services business determinations 191 87-60..... Personal services business determinations for individuals.............. 191 87-65..... Personal services business determinations for personal services entities 194 87-70..... Applying etc. for personal services business determinations.......... 196 87-75..... When personal services business determinations have effect.......... 197 87-80..... Revoking personal services business determinations...................... 198 87-85..... Review of decisions........................................................................ 198 Chapter 3--Specialist liability rules 199 Part 3-1--Capital gains and losses: general topics 199 Division 100--A Guide to capital gains and losses 199 General overview 199 100-1..... What this Division is about............................................................. 199 100-5..... Effect of this Division..................................................................... 200 100-10... Fundamentals of CGT..................................................................... 200 100-15... Overview of Steps 1 and 2.............................................................. 201 Step 1--Have you made a capital gain or a capital loss? 202 100-20... What events attract CGT?................................................................ 202 100-25... What are CGT assets?..................................................................... 203 100-30... Does an exception or exemption apply?.......................................... 203 100-33... Can there be a roll-over?................................................................. 204 Step 2--Work out the amount of the capital gain or loss 205 100-35... What is a capital gain or loss?......................................................... 205 100-40... What factors come into calculating a capital gain or loss?............... 205 100-45... How to calculate the capital gain or loss for most CGT events....... 206 Step 3--Work out your net capital gain or loss for the income year 206 100-50... How to work out your net capital gain or loss................................ 206 100-55... How do you comply with CGT?..................................................... 207 Keeping records for CGT purposes 207 100-60... Why keep records?.......................................................................... 207 100-65... What records?................................................................................. 207 100-70... How long you need to keep records................................................ 208 Division 102--Assessable income includes net capital gain 209 Guide to Division 102 209 102-1..... What this Division is about............................................................. 209 102-3..... Concessions in working out your net capital gain........................... 209 Operative provisions 210 102-5..... Assessable income includes net capital gain.................................... 210 102-10... How to work out your net capital loss............................................ 212 102-15... How to apply net capital losses....................................................... 213 102-20... Ways you can make a capital gain or a capital loss.......................... 213 102-22... Amounts of capital gains and losses............................................... 214 102-23... CGT event still happens even if gain or loss disregarded................ 214 102-25... Order of application of CGT events................................................ 214 102-30... Exceptions and modifications.......................................................... 215 Division 103--General rules 218 Guide to Division 103 218 103-1..... What this Division is about............................................................. 218 Operative provisions 218 103-5..... Giving property as part of a transaction.......................................... 218 103-10... Entitlement to receive money or property........................................ 218 103-15... Requirement to pay money or give property................................... 219 103-25... Choices........................................................................................... 219 103-30... Reduction of cost base etc. by net input tax credits......................... 220 Division 104--CGT events 221 Guide to Division 104 221 104-1..... What this Division is about............................................................. 221 104-5..... Summary of the CGT events........................................................... 222 Subdivision 104-A--Disposals 232 104-10... Disposal of a CGT asset: CGT event A1........................................ 232 Subdivision 104-B--Use and enjoyment before title passes 234 104-15... Use and enjoyment before title passes: CGT event B1.................... 234 Subdivision 104-C--End of a CGT asset 235 104-20... Loss or destruction of a CGT asset: CGT event C1........................ 235 104-25... Cancellation, surrender and similar endings: CGT event C2........... 236 104-30... End of option to acquire shares etc.: CGT event C3........................ 237 Subdivision 104-D--Bringing into existence a CGT asset 238 104-35... Creating contractual or other rights: CGT event D1........................ 238 104-40... Granting an option: CGT event D2................................................. 240 104-45... Granting a right to income from mining: CGT event D3................. 241 104-47... Conservation covenants: CGT event D4......................................... 241 Subdivision 104-E--Trusts 243 104-55... Creating a trust over a CGT asset: CGT event E1........................... 243 104-60... Transferring a CGT asset to a trust: CGT event E2......................... 244 104-65... Converting a trust to a unit trust: CGT event E3............................. 245 104-70... Capital payment for trust interest: CGT event E4............................ 245 104-71... Adjustment of non-assessable part.................................................. 247 104-72... Reducing your capital gain under CGT event E4 if you are a trustee 251 104-75... Beneficiary becoming entitled to a trust asset: CGT event E5......... 251 104-80... Disposal to beneficiary to end income right: CGT event E6............ 252 104-85... Disposal to beneficiary to end capital interest: CGT event E7......... 253 104-90... Disposal by beneficiary of capital interest: CGT event E8.............. 254 104-95... Making a capital gain...................................................................... 255 104-100. Making a capital loss....................................................................... 258 104-105. Creating a trust over future property: CGT event E9....................... 259 Subdivision 104-F--Leases 260 104-110. Granting a lease: CGT event F1...................................................... 260 104-115. Granting a long-term lease: CGT event F2...................................... 261 104-120. Lessor pays lessee to get lease changed: CGT event F3.................. 262 104-125. Lessee receives payment for changing lease: CGT event F4........... 262 104-130. Lessor receives payment for changing lease: CGT event F5........... 263 Subdivision 104-G--Shares 264 104-135. Capital payment for shares: CGT event G1..................................... 264 104-145. Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 266 Subdivision 104-H--Special capital receipts 267 104-150. Forfeiture of deposit: CGT event H1.............................................. 267 104-155. Receipt for event relating to a CGT asset: CGT event H2............... 268 Subdivision 104-I--Australian residency ends 269 104-160. Individual or company stops being an Australian resident: CGT event I1 269 104-165. Exception for individuals................................................................ 270 104-170. Trust stops being a resident trust: CGT event I2............................. 271 Subdivision 104-J--CGT events relating to roll-overs 272 104-175. Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 272 104-180. Sub-group break-up........................................................................ 274 104-182. Consolidated group break-up.......................................................... 275 104-185. Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2........................................................................................................ 276 104-190. Modifying or extending the replacement asset period..................... 278 104-195. Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 278 104-197. Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5.................................................................................. 280 104-198. Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6........................................... 281 Subdivision 104-K--Other CGT events 282 104-210. Bankrupt pays amount in relation to debt: CGT event K2............... 283 104-215. Asset passing to tax-advantaged entity: CGT event K3................... 283 104-220. CGT asset starts being trading stock: CGT event K4...................... 284 104-225. Special collectable losses: CGT event K5........................................ 285 104-230. Pre-CGT shares or trust interest: CGT event K6............................. 286 104-235. Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7 289 104-240. Working out capital gain or loss for CGT event K7: general case... 291 104-245. Working out capital gain or loss for CGT event K7: pooled assets. 292 104-250. Direct value shifts: CGT event K8.................................................. 293 104-255. Carried interests: CGT event K9..................................................... 294 104-260. Certain short-term forex realisation gains: CGT event K10 ............. 295 104-265. Certain short-term forex realisation losses: CGT event K11 ........... 296 104-270. Foreign hybrids: CGT event K12.................................................... 296 Subdivision 104-L--Consolidated groups and MEC groups 296 104-500. Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 297 104-505. Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 299 104-510. Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3........................................................................................................ 299 104-515. Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 300 104-520. Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 300 104-525. Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 301 104-535. Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8 303 Division 106--Entity making the gain or loss 304 Guide to Division 106 304 106-1..... What this Division is about............................................................. 304 Subdivision 106-A--Partnerships 304 106-5..... Partnerships.................................................................................... 304 Subdivision 106-B--Bankruptcy and liquidation 306 106-30... Effect of bankruptcy........................................................................ 307 106-35... Effect of liquidation......................................................................... 307 Subdivision 106-C--Absolutely entitled beneficiaries 307 106-50... Absolutely entitled beneficiaries...................................................... 307 Subdivision 106-D--Security holders 308 106-60... Acts by security holders.................................................................. 308 Division 108--CGT assets 309 Guide to Division 108 309 108-1..... What this Division is about............................................................. 309 Subdivision 108-A--What a CGT asset is 309 108-5..... CGT assets...................................................................................... 309 108-7..... Interest in CGT assets as joint tenants............................................. 310 Subdivision 108-B--Collectables 310 108-10... Losses from collectables to be offset only against gains from collectables 310 108-15... Sets of collectables.......................................................................... 311 108-17... Cost base of a collectable................................................................ 312 Subdivision 108-C--Personal use assets 312 108-20... Losses from personal use assets must be disregarded..................... 313 108-25... Sets of personal use assets.............................................................. 313 108-30... Cost base of a personal use asset.................................................... 314 Subdivision 108-D--Separate CGT assets 314 Guide to Subdivision 108-D 314 108-50... What this Subdivision is about........................................................ 314 Operative provisions 315 108-55... When is a building a separate asset from land?............................... 315 108-60... Depreciating asset that is part of a building is a separate asset........ 315 108-65... Land adjacent to land acquired before 20 September 1985.............. 315 108-70... When is a capital improvement a separate asset?............................. 316 108-75... Capital improvements to CGT assets for which a roll-over may be available 318 108-80... Deciding if capital improvements are related to each other.............. 320 108-85... Meaning of improvement threshold................................................ 320 Division 109--Acquisition of CGT assets 321 Guide to Division 109 321 109-1..... What this Division is about............................................................. 321 Subdivision 109-A--Operative rules 321 109-5..... General acquisition rules................................................................. 322 109-10... When you acquire a CGT asset without a CGT event.................... 324 109-15... Exceptions....................................................................................... 325 Subdivision 109-B--Signposts to other acquisition rules 325 109-50... Effect of this Subdivision................................................................ 325 109-55... Other acquisition rules.................................................................... 325 109-60... Acquisition rules outside this Part and Part 3-3.............................. 332 Division 110--Cost base and reduced cost base 335 Guide to Division 110 335 110-1..... What this Division is about............................................................. 335 110-5..... Modifications to general rules......................................................... 335 110-10... Rules about cost base not relevant for some CGT events................ 335 Subdivision 110-A--Cost base 337 110-25... General rules about cost base.......................................................... 338 110-35... Incidental costs................................................................................ 340 110-36... Indexation....................................................................................... 341 What does not form part of the cost base 342 110-37... Expenditure forming part of cost base or element........................... 342 110-38... Exclusions....................................................................................... 343 110-40... Assets acquired before 7.30 pm on 13 May 1997........................... 344 110-43... Partnership interests acquired before 7.30 pm on 13 May 1997..... 344 110-45... Assets acquired after 7.30 pm on 13 May 1997............................. 345 110-50... Partnership interests acquired after 7.30 pm on 13 May 1997........ 347 110-53... Exceptions to application of sections 110-45 and 110-50............... 349 110-54... Debt deductions disallowed by thin capitalisation rules.................. 349 Subdivision 110-B--Reduced cost base 349 110-55... General rules about reduced cost base............................................ 350 110-60... Reduced cost base for partnership assets........................................ 353 Division 112--Modifications to cost base and reduced cost base 355 Guide to Division 112 355 112-1..... What this Division is about............................................................. 355 112-5..... Discussion of modifications............................................................ 355 Subdivision 112-A--General modifications 356 112-15... General rule for replacement modifications..................................... 356 112-20... Market value substitution rule......................................................... 356 112-25... Split, changed or merged assets...................................................... 358 112-30... Apportionment rules....................................................................... 359 112-35... Assumption of liability rule............................................................. 361 112-37... Put options...................................................................................... 361 Subdivision 112-B--Finding tables for special rules 361 112-40... Effect of this Subdivision................................................................ 362 112-45... CGT events..................................................................................... 362 112-48... Gifts acquired by associates............................................................ 363 112-50... Main residence................................................................................ 363 112-53... Scrip for scrip roll-over................................................................... 364 112-53AAStatutory licences.......................................................................... 364 112-53A MDO roll-over................................................................................ 365 112-53B Exchange of stapled ownership interests for units in a unit trust..... 365 112-53C Water entitlement roll-overs............................................................ 365 112-54... Demergers....................................................................................... 366 112-54A Transfer of assets between certain trusts......................................... 366 112-55... Effect of you dying......................................................................... 367 112-60... Bonus shares or units...................................................................... 367 112-65... Rights.............................................................................................. 367 112-70... Convertible interests........................................................................ 368 112-77... Exchangeable interests.................................................................... 368 112-80... Leases............................................................................................. 369 112-85... Options........................................................................................... 369 112-87... Residency........................................................................................ 370 112-90... An asset stops being a pre-CGT asset............................................. 370 112-92... Demutualisation of certain entities................................................... 370 112-95... Transfer of tax losses and net capital losses within wholly-owned groups of companies 371 112-97... Modifications outside this Part and Part 3-3................................... 372 Subdivision 112-C--Replacement-asset roll-overs 379 112-100. Effect of this Subdivision................................................................ 379 112-105. What is a replacement-asset roll-over?............................................ 379 112-110. How is the cost base of the replacement asset modified?................ 380 112-115. Table of replacement-asset roll-overs.............................................. 380 Subdivision 112-D--Same-asset roll-overs 381 112-135. Effect of this Subdivision................................................................ 382 112-140. What is a same-asset roll-over?....................................................... 382 112-145. How is the cost base of the asset modified?.................................... 382 112-150. Table of same-asset roll-overs......................................................... 382 Division 114--Indexation of cost base 384 114-1..... Indexing elements of cost base........................................................ 384 114-5..... When indexation relevant................................................................ 385 114-10... Requirement for 12 months ownership........................................... 386 114-15... Cost base modifications.................................................................. 388 114-20... When expenditure is incurred for roll-overs.................................... 389 Division 115--Discount capital gains and trusts' net capital gains 391 Guide to Division 115 391 115-1..... What this Division is about............................................................. 391 Subdivision 115-A--Discount capital gains 392 What is a discount capital gain? 392 115-5..... What is a discount capital gain?...................................................... 392 115-10... Who can make a discount capital gain?........................................... 392 115-15... Discount capital gain must be made after 21 September 1999......... 393 115-20... Discount capital gain must not have indexed cost base................... 393 115-25... Discount capital gain must be on asset acquired at least 12 months before 394 115-30... Special rules about time of acquisition............................................ 395 115-32... Special rule about time of acquisition for certain replacement-asset roll-overs 399 115-34... Further special rule about time of acquisition for certain replacement-asset roll-overs 399 What are not discount capital gains? 401 115-40... Capital gain resulting from agreement made within a year of acquisition 401 115-45... Capital gain from equity in an entity with newly acquired assets.... 401 115-50... Discount capital gain from equity in certain entities........................ 403 115-55... Capital gains involving money received from demutualisation of friendly society health or life insurer 405 Subdivision 115-B--Discount percentage 406 115-100. What is the discount percentage for a discount capital gain............ 406 Subdivision 115-C--Rules about trusts with net capital gains 406 Guide to Subdivision 115-C 406 115-200. What this Division is about............................................................. 406 Operative provisions 407 115-210. When this Subdivision applies........................................................ 407 115-215. Assessing presently entitled beneficiaries....................................... 408 115-220. Assessing trustees under section 98 of the Income Tax Assessment Act 1936 409 115-222. Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936 410 115-225. Attributable gain.............................................................................. 411 115-227. Share of a capital gain..................................................................... 412 115-228. Specifically entitled to an amount of a capital gain........................... 412 115-230. Choice for resident trustee to be specifically entitled to capital gain 413 Subdivision 115-D--Tax relief for shareholders in listed investment companies 415 Guide to Subdivision 115-D 415 115-275. What this Subdivision is about........................................................ 415 Operative provisions 415 115-280. Deduction for certain dividends...................................................... 415 115-285. Meaning of LIC capital gain........................................................... 418 115-290. Meaning of listed investment company........................................... 419 115-295. Maintaining records........................................................................ 420 Division 116--Capital proceeds 421 Guide to Division 116 421 116-1..... What this Division is about............................................................. 421 116-5..... General rules................................................................................... 422 116-10... Modifications to general rules......................................................... 422 General rules 423 116-20... General rules about capital proceeds.............................................. 423 Modifications to general rules 425 116-25... Table of modifications to the general rules...................................... 425 116-30... Market value substitution rule: modification 1................................ 427 116-35... Companies and trusts that are not widely held................................ 429 116-40... Apportionment rule: modification 2................................................ 430 116-45... Non-receipt rule: modification 3...................................................... 431 116-50... Repaid rule: modification 4............................................................. 432 116-55... Assumption of liability rule: modification 5.................................... 432 116-60... Misappropriation rule: modification 6............................................. 432 Special rules 433 116-65... Disposal etc. of a CGT asset the subject of an option..................... 433 116-70... Option requiring both acquisition and disposal etc.......................... 434 116-75... Special rule for CGT event happening to a lease............................. 434 116-80... Special rule if CGT asset is shares or an interest in a trust.............. 434 116-85... Section 47A of 1936 Act applying to rolled-over asset................... 435 116-95... Company changes residence from an unlisted country.................... 436 116-100. Gifts of property............................................................................. 437 116-105. Conservation covenants.................................................................. 438 116-110. Roll-overs for merging superannuation funds................................. 438 Division 118--Exemptions 439 Guide to Division 118 439 118-1..... What this Division is about............................................................. 439 Subdivision 118-A--General exemptions 440 Exempt assets 441 118-5..... Cars, motor cycles and valour decorations...................................... 441 118-10... Collectables and personal use assets............................................... 441 118-12... Assets used to produce exempt income etc..................................... 442 118-13... Shares in a PDF.............................................................................. 444 Anti-overlap provisions 444 118-20... Reducing capital gains if amount otherwise assessable................... 444 118-21... Carried interests.............................................................................. 446 118-22... Superannuation lump sums and employment termination payments 447 118-24... Depreciating assets.......................................................................... 447 118-25... Trading stock.................................................................................. 447 118-27... Division 230 financial arrangements and financial arrangements to which Subdivision 250-E applies 448 118-30... Film copyright................................................................................. 449 118-35... R&D............................................................................................... 449 Exempt or loss-denying transactions 449 118-37... Compensation, damages etc............................................................ 449 118-40... Expiry of a lease.............................................................................. 453 118-42... Transfer of stratum units................................................................. 453 118-45... Sale of rights to mine...................................................................... 453 118-55... Foreign currency hedging gains and losses..................................... 453 118-60... Certain gifts..................................................................................... 454 118-65... Later distributions of personal services income............................... 454 118-70... Transactions by exempt entities....................................................... 455 118-75... Marriage or relationship breakdown settlements............................. 455 Boat capital gains 455 118-80... Reduction of boat capital gain......................................................... 455 Special disability trusts 456 118-85... Special disability trusts.................................................................... 456 Subdivision 118-B--Main residence 456 Guide to Subdivision 118-B 456 118-100. What this Subdivision is about........................................................ 456 118-105. Map of this Subdivision.................................................................. 459 Basic case and concepts 459 118-110. Basic case........................................................................................ 459 118-115. Meaning of dwelling....................................................................... 460 118-120. Extension to adjacent land etc.......................................................... 461 118-125. Meaning of ownership period......................................................... 461 118-130. Meaning of ownership interest in land or a dwelling...................... 462 Rules that may extend the exemption 462 118-135. Moving into a dwelling................................................................... 462 118-140. Changing main residences............................................................... 463 118-145. Absences......................................................................................... 463 118-147. Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc. 464 118-150. If you build, repair or renovate a dwelling...................................... 466 118-155. Where individual referred to in section 118-150 dies...................... 467 118-160. Destruction of dwelling and sale of land......................................... 467 Rules that may limit the exemption 468 118-165. Separate CGT event for adjacent land or other structures................ 468 118-170. Spouse having different main residence.......................................... 468 118-175. Dependent child having different main residence............................ 469 Roll-overs under Subdivision 126-A 469 118-178. Previous roll-over under Subdivision 126-A.................................. 469 118-180. Acquisition of dwelling from company or trust on marriage or relationship breakdown--roll-over provision applying........................................................................................................ 470 Partial exemption rules 471 118-185. Partial exemption where dwelling was your main residence during part only of ownership period 471 118-190. Use of dwelling for producing assessable income.......................... 472 118-192. Special rule for first use to produce income.................................... 473 Dwellings acquired from deceased estates 474 118-195. Dwelling acquired from a deceased estate....................................... 474 118-197. Special rule for surviving joint tenant.............................................. 476 118-200. Partial exemption for deceased estate dwellings.............................. 476 118-205. Adjustment if dwelling inherited from deceased individual............. 477 118-210. Trustee acquiring dwelling under will............................................. 478 Special disability trusts 480 118-215. What the following provisions are about......................................... 480 118-218. Exemption available to trustee--main case...................................... 480 118-220. Exemption available to trustee--after the principal beneficiary's death 481 118-222. Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary's death 481 118-225. Amount of exemption available after the principal beneficiary's death--general 482 118-227. Amount of exemption available after the principal beneficiary's death--cost base and reduced cost base 483 118-230. Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts 484 Compulsory acquisitions of adjacent land only 484 118-240. What the following provisions are about......................................... 484 118-245. CGT events happening only to adjacent land.................................. 485 118-250. Compulsory acquisitions of adjacent land....................................... 486 118-255. Maximum exempt area.................................................................... 488 118-260. Partial exemption rules.................................................................... 489 118-265. Extension to adjacent structures...................................................... 489 Subdivision 118-D--Insurance and superannuation 489 118-300. Insurance policies............................................................................ 489 118-305. Superannuation............................................................................... 491 118-310. RSA's............................................................................................. 492 118-313. Superannuation agreements under the Family Law Act.................. 492 118-315. Segregated exempt assets of life insurance companies.................... 492 118-320. Segregated current pension assets of a complying superannuation entity 492 Subdivision 118-E--Units in pooled superannuation trusts 492 118-350. Units in pooled superannuation trusts............................................. 492 Subdivision 118-F--Venture capital investment 493 Guide to Subdivision 118-F 493 118-400. What this Subdivision is about........................................................ 493 Operative provisions 494 118-405. Exemption for certain foreign venture capital investments through venture capital limited partnerships 494 118-407. Exemption for certain venture capital investments through early stage venture capital limited partnerships 496 118-410. Exemption for certain foreign venture capital investments through Australian venture capital funds of funds 499 118-415. Exemption for certain venture capital investments by foreign residents 501 118-420. Meaning of eligible venture capital partner etc............................... 502 118-425. Meaning of eligible venture capital investment--investments in companies 505 118-427. Meaning of eligible venture capital investment--investments in unit trusts 512 118-428. Additional investment requirements for ESVCLPs......................... 518 118-430. Meaning of at risk........................................................................... 519 118-435. Special rule relating to investment in foreign resident holding companies 520 118-440. Meaning of permitted entity value................................................... 521 118-445. Meaning of committed capital......................................................... 523 Subdivision 118-G--Venture capital: investment by superannuation funds for foreign residents 524 Guide to Subdivision 118-G 524 118-500. What this Subdivision is about........................................................ 524 118-505. Exemption for certain foreign venture capital.................................. 524 118-510. Meaning of resident investment vehicle........................................... 525 118-515. Meaning of venture capital entity.................................................... 525 118-520. Meaning of superannuation fund for foreign residents.................. 526 118-525. Meaning of venture capital equity................................................... 527 Subdivision 118-H--Demutualisation of Tower Corporation 528 118-550. Demutualisation of Tower Corporation........................................... 528 Division 121--Record keeping 530 Guide to Division 121 530 121-10... What this Division is about............................................................. 530 Operative provisions 530 121-20... What records you must keep........................................................... 530 121-25... How long you must retain the records............................................ 532 121-30... Exceptions....................................................................................... 533 121-35... Asset register entries....................................................................... 533 Part 3-3--Capital gains and losses: special topics 535 Division 122--Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company 535 Guide to Division 122 535 122-1..... What this Division is about............................................................. 535 Subdivision 122-A--Disposal or creation of assets by an individual or trustee to a wholly-owned company 536 Guide to Subdivision 122-A 536 122-5..... What this Subdivision is about........................................................ 536 When is a roll-over available 537 122-15... Disposal or creation of assets--wholly-owned company............... 537 122-20... What you receive for the trigger event............................................. 537 122-25... Other requirements to be satisfied................................................... 538 122-35... What if the company undertakes to discharge a liability (disposal case) 540 122-37... Rules for working out what a liability in respect of an asset is........ 541 Replacement-asset roll-over if you dispose of a CGT asset 542 122-40... Disposal of a CGT asset................................................................. 542 Replacement-asset roll-over if you dispose of all the assets of a business 543 122-45... Disposal of all the assets of a business........................................... 543 122-50... All assets acquired on or after 20 September 1985......................... 543 122-55... All assets acquired before 20 September 1985................................ 544 122-60... Assets acquired before and after 20 September 1985...................... 545 Replacement-asset roll-over for a creation case 546 122-65... Creation of asset.............................................................................. 546 Same-asset roll-over consequences for the company (disposal case) 547 122-70... Consequences for the company (disposal case).............................. 547 Same-asset roll-over consequences for the company (creation case) 548 122-75... Consequences for the company (creation case)............................... 548 Subdivision 122-B--Disposal or creation of assets by partners to a wholly-owned company 548 Guide to Subdivision 122-B 548 122-120. What this Subdivision is about........................................................ 548 When is a roll-over available 549 122-125. Disposal or creation of assets--wholly-owned company............... 549 122-130. What the partners receive for the trigger event................................ 550 122-135. Other requirements to be satisfied................................................... 551 122-140. What if the company undertakes to discharge a liability (disposal case) 553 122-145. Rules for working out what a liability in respect of an interest in an asset is 554 Replacement-asset roll-over if partners dispose of a CGT asset 555 122-150. Capital gain or loss disregarded...................................................... 555 122-155. Disposal of post-CGT or pre-CGT interests................................... 555 122-160. Disposal of both post-CGT and pre-CGT interests......................... 556 Replacement-asset roll-over if the partners dispose of all the assets of a business 556 122-170. Capital gain or loss disregarded...................................................... 556 122-175. Other consequences........................................................................ 557 122-180. All interests acquired on or after 20 September 1985...................... 557 122-185. All interests acquired before 20 September 1985............................ 557 122-190. Interests acquired before and after 20 September 1985................... 558 Replacement-asset roll-over for a creation case 559 122-195. Creation of asset.............................................................................. 559 Same-asset roll-over consequences for the company (disposal case) 560 122-200. Consequences for the company (disposal case).............................. 560 Same-asset roll-over consequences for the company (creation case) 562 122-205. Consequences for the company (creation case)............................... 562 Table of Subdivisions Guide to Division 58 58-A Application 58-B Calculating decline in value of privatised assets under Division 40 Guide to Division 58 INCOME TAX ASSESSMENT ACT 1997 - SECT 58.1 What this Division is about This Division sets out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets: * continue to be owned by that entity after the entity becomes taxable; or * are acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity. There is a choice of 2 methods for each depreciating asset: * the notional written down value method; and * the undeducted pre-existing audited book value method. Table of sections 58-5 Application of Division 58-10 When an asset is acquired in connection with the acquisition of a business INCOME TAX ASSESSMENT ACT 1997 - SECT 58.5 Application of Division (1) This Division applies in 2 situations. Entity sale (2) The first (an entity sale situation) is where: (a) at a particular time on or after 1 July 2001, an entity is an * exempt entity; and (b) just after that time, the entity's * ordinary income or * statutory income becomes to any extent assessable income. (3) In an entity sale situation: (a) the entity is a transition entity; and (b) the time when the entity's * ordinary income or * statutory income becomes to that extent assessable is the transition time; and (c) the income year in which the * transition time occurs is the transition year for the entity; and (d) the * depreciating assets the *transition entity *held just before the transition time are privatised assets. Asset sale (4) The second (an asset sale situation) is where: (a) at a particular time on or after 1 July 2001, an entity (the purchaser) whose * ordinary income or statutory income is to any extent assessable acquires a * depreciating asset from the Commonwealth, a State, a Territory or an * exempt entity; and (b) the asset is acquired in connection with the acquisition of a * business from the Commonwealth, the State, the Territory or the exempt entity. (5) In an asset sale situation: (a) the Commonwealth, the State, the Territory or the * exempt entity is the tax exempt vendor; and (b) the time when the * depreciating asset is acquired is the acquisition time; and (c) the income year in which the * acquisition time occurs is the acquisition year; and (d) each * depreciating asset the purchaser acquires from the * tax exempt vendor at the acquisition time is a privatised asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.10 When an asset is acquired in connection with the acquisition of a business (1) A * depreciating asset is taken to be acquired in connection with the acquisition of a * business from the Commonwealth, the State, the Territory or the * exempt entity if and only if: (a) the asset was used by the Commonwealth, the State, the Territory or the exempt entity in carrying on a business and the purchaser or another entity uses the asset in carrying on the business; or (b) subsection (2) applies. (2) This subsection applies if: (a) the asset was used by the Commonwealth, the State, the Territory or the * exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a * business by the Commonwealth, the State, the Territory or the exempt entity and the asset is used by the purchaser or another entity in performing those functions or engaging in those activities as part of carrying on a business; or (b) all of these subparagraphs apply: (i) the acquisition by the purchaser of the asset was connected with the acquisition of another asset by the purchaser or another entity from the Commonwealth, the State, the Territory or the exempt entity or from an * associate of the Commonwealth, the State, the Territory or the exempt entity; (ii) ownership of the other asset gives the purchaser or other entity a right, or imposes on the purchaser or other entity an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other entity a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business; (iii) the asset is used by the purchaser or other entity in performing those functions or engaging in those activities under the right or obligation or in taking the benefit of the advantage or opportunity; or (c) the asset was acquired by the purchaser under an * arrangement under which the purchaser or another entity acquired another asset from the Commonwealth, the State, the Territory or the exempt entity or from an associate of the Commonwealth, the State, the Territory or the exempt entity and: (i) the other asset is taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; or (ii) where the other asset is not a depreciating asset, it would, if it were a depreciating asset, be taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; to be acquired in connection with the acquisition of a business from the Commonwealth, the State, the Territory or the exempt entity. (3) Paragraphs (2)(a), (b) and (c) do not apply if the asset is used by the purchaser solely to * derive assessable income from the provision of office or residential accommodation. Table of sections 58-60 Purpose of rules in this Subdivision 58-65 Choice of method to work out cost of privatised asset 58-70 Application of Division 40 58-75 Meaning of notional written down value 58-80 Meaning of undeducted pre-existing audited book value 58-85 Pre-existing audited book value of depreciating asset 58-90 Method and effective life for transition entity INCOME TAX ASSESSMENT ACT 1997 - SECT 58.60 Purpose of rules in this Subdivision This Subdivision sets out rules that affect the way in which the * transition entity or the purchaser work out the decline in value of, and balancing adjustments for, * privatised assets under Division 40 after the * transition time or the * acquisition time. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.65 Choice of method to work out cost of privatised asset (1) The * transition entity or the purchaser has a choice to work out the first element of the * cost of each *privatised asset. (2) The choice is to use either: (a) the * notional written down value of the asset; or (b) the * undeducted pre-existing audited book value (if any) of the asset. (3) The choice must be made: (a) for the * transition entity--by the day on which the transition entity lodges its * income tax return for the *transition year; or (b) for the purchaser--by the day on which the purchaser lodges the purchaser's income tax return for the * acquisition year; or within a further period allowed by the Commissioner. (4) The choice, once made, cannot be changed. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.70 Application of Division 40 Application of Division 40 (1) The * transition entity and the purchaser work out the decline in value of, and the effect of a * balancing adjustment event occurring for, each * privatised asset using Division 40 (Capital allowances) as if the asset had been acquired under a contract entered into on or after 1 July 2001. Entity sale situation (2) Division 40 applies to a * privatised asset *held by the *transition entity as if the asset had not been used, or * installed ready for use, for any purpose before the * transition time. (3) The first element of the * cost to the *transition entity at the * transition time is the * notional written down value of the asset or the * undeducted pre-existing audited book value of the asset (depending on the choice made for the asset). (4) No amount incurred before the * transition time is included in the second element of the * cost of a *privatised asset. Asset sale situation (5) The first element of the * cost of a *privatised asset to the purchaser at the * acquisition time is the sum of: (a) the * notional written down value of the asset or the * undeducted pre-existing audited book value of the asset (depending on the choice made for the asset); and (b) the amount of any incidental costs to the purchaser in acquiring the asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.75 Meaning of notional written down value (1) The notional written down value of a * privatised asset is its * adjustable value in the hands of: (a) the * transition entity just before the *transition time; or (b) the * tax exempt vendor just before the *acquisition time; worked out using the assumptions in this section. Application of Division 40 (2) Assume that Division 40 had always applied to work out the decline in value of the * privatised asset. Use for taxable purposes (3) Assume that, in applying Division 40 to the * privatised asset, it had always been used by the * transition entity or the *tax exempt vendor wholly for *taxable purposes. Cost and acquisition time: exempt Australian government agency (4) If the * transition entity or the *tax exempt vendor was an * exempt Australian government agency just before the * transition time and had acquired the *privatised asset from another exempt Australian government agency: (a) assume that the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency and that the first element of its * cost to the transition entity or tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or (b) if it had, before its acquisition by the transition entity or tax exempt vendor, been successively * held by 2 or more exempt Australian government agencies--assume that: (i) the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it; and (ii) the first element of its cost to the transition entity or tax exempt vendor is the sum of the amount that was the first element of its cost to the first of those exempt Australian government agencies that owned it and any amount included in the second element of its cost for that first agency or a later successive agency. Effective life (5) Assume that: (a) the * transition entity or the *tax exempt vendor had chosen to use an * effective life determined by the Commissioner for the * privatised asset as in force at the *transition time or the * acquisition time; and (b) subsection 40-95(2) did not apply. (5A) Assume that section 40-102 did not apply to a * privatised asset unless all of the following are satisfied: (a) it is an entity sale situation within the meaning of section 58-5; (b) a * capped life applies to the asset under subsection 40-102(4) or (5) at both the asset's * start time and the *transition time; (c) the * transition entity chooses, for the purposes of this section, to have section 40-102 apply to the asset. If section 40-102 is to be applied to the asset, disregard paragraphs 40-102(2)(a) and (b) and assume that the relevant time for the purposes of the application of that section to the asset were the transition time. (6) Assume also that section 40-110 (about recalculating effective life) did not apply. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.80 Meaning of undeducted pre-existing audited book value (1) The undeducted pre-existing audited book value of a * privatised asset is its *adjustable value in the hands of: (a) the * transition entity just before the *transition time; or (b) the * tax exempt vendor just before the *acquisition time; worked out using the assumptions in this section. Application of Division 40 (2) Assume that Division 40 had always applied to work out the decline in value of the * privatised asset. Use for taxable purposes (3) Assume that, in applying Division 40 to the * privatised asset, it had always been used by the * transition entity or the *tax exempt vendor wholly for *taxable purposes. Cost (4) Assume that: (a) the first element of the * privatised asset's * cost to the * transition entity or the * tax exempt vendor is its * pre-existing audited book value as at the latest time (the test time) at which it had a pre-existing audited book value; and (b) no amount was included in the second element of the asset's cost before the test time; and (c) any amount included in the second element of the asset's cost after the test time had been incurred by the transition entity or the tax exempt vendor. Acquisition time (5) Assume that the * transition entity or the *tax exempt vendor had acquired the * privatised asset at the test time. Effective life (6) Assume that: (a) the * transition entity or the *tax exempt vendor had chosen to use an * effective life determined by the Commissioner for the * privatised asset as in force at the *transition time or the * acquisition time; and (b) subsection 40-95(2) did not apply. Note: Section 40-102 does not apply to a privatised asset for the purposes of this section. (7) Assume also that section 40-110 (about recalculating effective life) did not apply. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.85 Pre-existing audited book value of depreciating asset (1) A * privatised asset has a pre-existing audited book value if: (a) a balance sheet, as at the end of an annual accounting period (the balance date), that was prepared as part of the final accounts of the Commonwealth, a State, a Territory or an * exempt entity for that period showed the asset as an asset of the relevant entity and specified a value for it; and (b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and (c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the asset. The asset is taken to have had a pre-existing audited book value at the balance date of an amount equal to the specified value. (2) If a balance sheet did not specify a value for the asset but specified a total value for 2 or more assets including the asset, the balance sheet is taken to have specified as the value of the asset so much of that total value as is reasonably attributable to the asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 58.90 Method and effective life for transition entity (1) The * transition entity must, in working out the decline in value of a * privatised asset, use the *diminishing value method or the *prime cost method for the asset that it used to work out the * notional written down value, or the *undeducted pre-existing audited book value, of the asset. (2) In working out the decline in value of a * privatised asset held by a * transition entity: (a) if section 40-102 applied to the asset for the purposes of subsection 58-75(5A)--section 40-102 applies to the asset and applies as if the relevant time for the asset for the purposes of that section were the * transition time; or (b) if section 40-102 did not apply to the asset for the purposes of subsection 58-75(5A) or section 58-80--section 40-102 does not apply to the asset. Guide to Division 59 INCOME TAX ASSESSMENT ACT 1997 - SECT 59.1 What this Division is about This Division details particular amounts that are non-assessable non-exempt income. Table of sections Operative provisions 59-10 Compensation under firearms surrender arrangements 59-15 Mining payments 59-20 Taxable amounts relating to franchise fees windfall tax 59-25 Taxable amounts relating to Commonwealth places windfall tax 59-30 Amounts you must repay 59-35 Amounts that would be mutual receipts but for prohibition on distributions to members 59-40 Issue of rights 59-45 Tax bonus for the 2007-08 income year 59-55 2010-11 floods--recovery grants for small businesses and primary producers 59-60 Cyclone Yasi--recovery grants for small businesses and primary producers Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 59.10 Compensation under firearms surrender arrangements A payment made to you by way of compensation under * firearms surrender arrangements for any loss of business is not assessable income and is not * exempt income. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.15 Mining payments (1) These are not assessable income and are not * exempt income: (a) a * mining payment made to a *distributing body; (b) a mining payment made to one or more * Aboriginals, or applied for their benefit. (2) A payment: (a) made to a * distributing body; or (b) made to one or more * Aboriginals, or applied for their benefit; is not assessable income and is not * exempt income if the payment is made by a * distributing body out of a *mining payment that it has received. (3) A payment made to a * distributing body by another distributing body, out of a * mining payment received by the other distributing body, is taken to be a mining payment for the purposes of: (a) any further applications of subsection (2); and (b) any further applications of this subsection. (4) Subsection (2) does not apply to a payment by a * distributing body for the purposes of meeting its administrative costs. (5) This section does not apply to an amount paid to or applied for the benefit of a person if it is remuneration or consideration for goods or services provided by that person. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.20 Taxable amounts relating to franchise fees windfall tax Taxable amounts on which tax is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997 are not assessable income and are not * exempt income. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.25 Taxable amounts relating to Commonwealth places windfall tax Taxable amounts on which tax is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998 are not assessable income and are not * exempt income. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.30 Amounts you must repay (1) An amount you receive is not assessable income and is not * exempt income for an income year if: (a) you must repay it; and (b) you repay it in a later income year; and (c) you cannot deduct the repayment for any income year. (2) It does not matter if: (a) you received the amount as part of a larger amount; or (b) the obligation to repay existed when you received the amount or it came into existence later. (3) This section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.35 Amounts that would be mutual receipts but for prohibition on distributions to members An amount of * ordinary income of an entity is not assessable income and not * exempt income if: (a) the amount would be a mutual receipt, but for the entity's constituent document preventing the entity from making any * distribution, whether in money, property or otherwise, to its members; and (b) apart from this section, the amount would be assessable income only because of section 6-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.40 Issue of rights (1) The * market value, as at the time of issue (the issue time), of rights issued to you: (a) by a company to * acquire *shares in that company; or (b) by a trustee of a unit trust to acquire units in that trust; is not assessable income and is not * exempt income as at the issue time if the conditions in subsection (2) are satisfied. (2) The conditions are as follows: (a) at the issue time, you must already own * shares in the company or units in the unit trust (the original interests); (b) the rights must be issued to you because of your ownership of the original interests; (c) the original interests and the rights must not be * revenue assets or * trading stock at the issue time; (d) if you acquired a beneficial interest in the rights under an * employee share scheme--neither Subdivision 83A-B nor 83A-C (about employee share schemes) applies to the beneficial interest; (e) the original interests and the rights must not be * traditional securities; (f) the original interests must not be * convertible interests. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.45 Tax bonus for the 2007-08 income year A tax bonus paid in accordance with the Tax Bonus for Working Australians Act (No. 2) 2009 is not assessable income and is not * exempt income. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.55 2010-11 floods--recovery grants for small businesses and primary producers Payments under the Natural Disaster Relief and Recovery Arrangements (set out in a determination made by the Minister for Local Government, Territories and Roads on 21 February 2007) are not assessable income and are not * exempt income, if: (a) the payments are part of a Category C measure (within the meaning of the determination); and (b) the Category C measure relates to the floods that occurred in Australia during the period that: (i) occurred during the 2010-11 * financial year; and (ii) started on 29 November 2010; and (c) the payments are: (i) recovery grants for small businesses; or (ii) recovery grants for primary producers. INCOME TAX ASSESSMENT ACT 1997 - SECT 59.60 Cyclone Yasi--recovery grants for small businesses and primary producers Payments under the Natural Disaster Relief and Recovery Arrangements (set out in a determination made by the Minister for Local Government, Territories and Roads on 21 February 2007) are not assessable income and are not * exempt income, if: (a) the payments are part of a Category C measure (within the meaning of the determination); and (b) the Category C measure relates to Cyclone Yasi; and (c) the payments are: (i) recovery grants for small businesses; or (ii) recovery grants for primary producers. Table of Subdivisions 61-G Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 61-I First child tax offset (baby bonus) 61-IA Child care tax offset 61-J 25% entrepreneurs' tax offset 61-K Mature age worker tax offset 61-L Tax offset for Medicare levy surcharge (lump sum payments in arrears) 61-M Education expenses tax offset Guide to Subdivision 61-G INCOME TAX ASSESSMENT ACT 1997 - SECT 61.200 What this Subdivision is about You can choose to claim a tax offset for a premium, or an amount in respect of a premium, paid under a private health insurance policy instead of having the premium reduced under Division 23 of the Private Health Insurance Act 2007 or receiving a payment under Division 26 of that Act. Table of sections Operative provisions 61-205 Entitlement to the private health insurance tax offset 61-210 Amount of the private health insurance tax offset 61-215 Tax offset after a person 65 years or over ceases to be covered by policy 61-220 How to work out the incentive amount Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 61.205 Entitlement to the private health insurance tax offset (1) If you are an individual (other than an individual in the capacity of an employer), you are entitled to a * tax offset for the 2007-08 income year or a later income year if: (a) a premium, or an amount in respect of a premium, was paid by you, or by your employer as a * fringe benefit for you, under a complying private health insurance policy (within the meaning of the Private Health Insurance Act 2007), on or after 1 July 2007; and (b) the premium, or amount in respect of a premium, was paid during the income year; and (c) each person insured under the complying health insurance policy during the period covered by the premium or amount is, for the whole of the time that he or she is insured under the policy during that period, an eligible person within the meaning of section 3 of the Health Insurance Act 1973, or treated as such because of section 6, 6A or 7 of that Act. (2) You are also entitled to the * tax offset if: (a) you are a trustee who is liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate; and (b) the beneficiary who is presently entitled to the share of the income of the trust estate would be entitled to the tax offset because of subsection (1). (3) However, you are not entitled to the * tax offset in respect of the payment of any premium, or any amount in respect of a premium, if: (a) you have received an amount under Division 26 of the Private Health Insurance Act 2007 in relation to the payment; or (b) the premium, or the amount in respect of a premium, was less than it would otherwise have been because of the operation of Division 23 of that Act. Note: In certain circumstances you can get a refund of the tax offset under Division 67. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.210 Amount of the private health insurance tax offset (1) The amount of the * tax offset for an income year is the sum of: (a) 30% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a * fringe benefit for you, under the policy in respect of days in the income year on which no person covered by the policy was aged 65 years or over; and (b) 35% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a fringe benefit for you, under the policy in respect of days in the income year on which: (i) at least one person covered by the policy was aged 65 years or over; and (ii) no person covered by the policy was aged 70 years or over; and (c) 40% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a fringe benefit for you, under the policy in respect of days in the income year on which at least one person covered by the policy was aged 70 years or over. (2) However, if, before 1 January 1999, a person was registered, or eligible to be registered, under the Private Health Insurance Incentives Act 1997 in respect of the policy for the income year, the amount of the * tax offset for the income year is the greater of: (a) the amount worked out under subsection (1); and (b) the * incentive amount for the policy for the income year. (3) If, because of the operation of Division 23 of the Private Health Insurance Act 2007, an amount paid by you, or by your employer as a * fringe benefit for you, under a policy was less than the amount that would otherwise have been payable, the * tax offset in respect of the amount paid is reduced by the amount of the difference. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.215 Tax offset after a person 65 years or over ceases to be covered by policy (1) If: (a) at any time, the amount of a * tax offset in respect of premiums payable under an insurance policy (the original policy) was 35% or 40% of the premiums payable under the policy because a person aged 65 years or over (the entitling person) was insured under the original policy; and (b) at that time, another person (other than a dependent child) was insured under the original policy; and (c) the entitling person subsequently ceases to be insured under the policy; subsections 61-210(1) and (2) apply in relation to a complying health insurance policy (whether or not the original policy) under which the other person is insured (other than for the purposes of working out the * incentive amount) as if: (d) the entitling person were also insured under that policy; and (e) the entitling person were the same age as the age at which he or she ceased to be insured under the original policy. (2) Subsection (1) ceases to apply if a person (other than a dependent child) who was not insured under the original policy at the time the entitling person ceased to be insured under it becomes insured under the complying health insurance policy. (3) Subsection (1) does not apply if its application would result in the amount of the * tax offset under subsection 61-210(1) or (2) being less than it would otherwise have been. (4) Paragraph (1)(a) applies in relation to an amount of a * tax offset that is 35% or 40% of the premiums payable under an insurance policy whether the tax offset was available under this Subdivision or Subdivision 61-H as in force before 1 July 2007. (5) In this section: "complying health insurance policy" has the same meaning as in the Private Health Insurance Act 2007. "dependent child": (a) has the meaning given in the Private Health Insurance Act 2007; and (b) in paragraph (1)(b), in relation to a time before 1 July 2007, includes a dependent child within the meaning of the Private Health Insurance Incentives Act 1998. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.220 How to work out the incentive amount (1) The incentive amount for a complying private health insurance policy (within the meaning of the Private Health Insurance Act 2007) for an income year is the amount worked out under this table: Incentive amount Item Number and kinds of people covered by the policy Policy covers * hospital treatment but not * general treatment Policy covers * general treatment but not * hospital treatment Policy covers * hospital treatment and * general treatment 1 3 or more people $350 $100 $450 2 One dependent child and one other person $350 $100 $450 3 2 people neither of whom is a dependent child $200 $50 $250 4 One person $100 $25 $125 (2) If the amount of the premium, or the amount in respect of a premium, paid by you, or by your employer as a * fringe benefit for you, under the policy is for part only of the income year, the incentive amount is worked out using this formula: Guide to Subdivision 61-I INCOME TAX ASSESSMENT ACT 1997 - SECT 61.350 What this Subdivision is about You are entitled to a tax offset for your first child, for income years up to and including the year the child turns 5, if you meet certain conditions. The amount of the offset is usually based on your tax liability in the year before you became responsible for the child, and on a comparison between your taxable income in that year and the year you are claiming for. However, if you are a low income taxpayer, a minimum offset will generally be available. Instead of claiming the offset yourself, you may transfer your entitlement to your spouse. If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption. Table of sections Entitlement to a first child tax offset 61-355 Who is entitled to a tax offset under this section 61-360 What is a child event? 61-365 First child only 61-370 Another carer with entitlement for another child 61-375 Selection rules 61-380 Special rules for death of first child Transferring an entitlement 61-385 You may transfer your entitlement to a tax offset 61-390 Transfer is irrevocable 61-395 Transferor is not entitled to tax offset 61-400 Transferee is entitled to tax offset Claiming a first child tax offset 61-405 How to claim a tax offset for a child 61-410 Claim is irrevocable Amount of a first child tax offset 61-415 Formula for working out amount of tax offset 61-420 Component of formula--entitlement amount 61-425 Component of formula--total of the entitlement days 61-430 What is your base year? Additional tax offset if a child is in your care before you legally adopt the child 61-440 Additional tax offset if a child is in your care before you legally adopt the child 61-445 When a child is first in your care 61-450 What is your base year if a child is in your care before you legally adopt the child? 61-455 Old Subdivision applies if you would be worse off Entitlement to a first child tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.355 Who is entitled to a tax offset under this section (1) You are entitled to a * tax offset for a child for an income year if you meet the conditions in subsection (3) at any time in the income year. Note: If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61-440). (2) To meet those conditions for a child at a given time is to have a primary entitlement to the * tax offset for the child at that time. (3) The conditions are that: (a) you have had a * child event (see section 61-360) in relation to the child (whether or not in the income year); and (b) section 61-365 (first child only) does not prevent you from having a * primary entitlement to the offset for the child; and (c) at the time: (i) the child is less than 5; and (ii) you are * legally responsible for the child; and (iii) the child is in your care; and (iv) you are an Australian resident; and (v) section 61-370 (another carer) does not prevent you from having a primary entitlement to the offset for the child; and (vi) if section 61-375 (selection rules) applies--you are selected by subsection (3) of that section. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.360 What is a child event? You have a child event at a particular time (the event time) if: (a) you become * legally responsible for a child at the event time; and Example: Giving birth is generally an example of becoming legally responsible for a child. (b) the event time is on or after 1 July 2001 and before 1 July 2004; and (c) you are an Australian resident at the event time; and (d) you were not legally responsible for the child at any time before 1 July 2001; and (e) there is no other person who is also legally responsible for the child at the event time and who was legally responsible for the child at any time before 1 July 2001. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.365 First child only You cannot have a * primary entitlement to a * tax offset under section 61-355 for a child if: (a) you have had a * child event in relation to another child that was earlier than the child event you had for the first-mentioned child; and (b) you meet, or met at any time, the conditions in subparagraphs 61-355(3)(c)(i) to (iv) for that other child. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.370 Another carer with entitlement for another child You cannot have a * primary entitlement to a * tax offset under section 61-355 for a child at a time if: (a) at that time: (i) another person is * legally responsible for the child; and (ii) the child is in the other person's care; and (b) the other person has, or had at any time, a primary entitlement to a tax offset for another child. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.375 Selection rules (1) This section applies if the conditions in subsection 61-355(3) (other than subparagraph (c)(vi)) are met by more than one person at the same time in relation to the same child. (2) Only one of those persons can have a * primary entitlement to a * tax offset under section 61-355 for the child at that time. (3) The person who gets the * primary entitlement to the offset at that time is selected in the following order of priority: (a) the natural mother; (b) if only one is the adoptive mother--the adoptive mother; (c) if only one is a woman--the woman; (d) the natural father; (e) if only one is the adoptive father--the adoptive father; (f) the person determined by the Commissioner, having regard to: (i) any agreement between the persons; and (ii) any other matters that the Commissioner considers relevant. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.380 Special rules for death of first child Child dies aged less than 5 (1) This section applies if your * primary entitlement to a * tax offset under section 61-355 for a child ends because the child dies aged less than 5. Special extension of time in year of death (2) Your * primary entitlement is extended until the end of the income year in which the death occurred. Limit on application of first child only rule (3) Section 61-365 does not prevent you from having a * primary entitlement to a * tax offset for another child after the end of the income year in which the death occurred. Transferring an entitlement INCOME TAX ASSESSMENT ACT 1997 - SECT 61.385 You may transfer your entitlement to a tax offset (1) If you are entitled to a * tax offset for a child for an income year under section 61-355 or 61-440, you may transfer that entitlement to another person. (1A) However, if you are entitled to a * tax offset for a child for a particular income year under both of sections 61-355 and 61-440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person. (2) A transfer has effect only if: (a) the transferee was your * spouse at all times when you had a * primary entitlement for the child for the income year; and (b) the transferee does not have a primary entitlement for that, or another, child for any time during the income year; and (c) you have not already claimed the * tax offset for the income year; and (d) you make the transfer after the end of the income year; and (e) the transfer is in the * approved form. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.390 Transfer is irrevocable A transfer cannot be changed or revoked. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.395 Transferor is not entitled to tax offset You are no longer yourself entitled to a * tax offset for a child for an income year if you transfer the entitlement under section 61-385 for that income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.400 Transferee is entitled to tax offset If an entitlement to a * tax offset is transferred under section 61-385, the transferee is entitled to the offset for the income year. Claiming a first child tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.405 How to claim a tax offset for a child If you are entitled under this Subdivision to a * tax offset for an income year, you may claim the offset only: (a) in the * income tax return you give the Commissioner, before 1 July 2014, for the income year for which you are entitled to the offset; or (b) if you are not required to give the Commissioner a return for the income year--in the * approved form given to the Commissioner before 1 July 2014. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.410 Claim is irrevocable A claim for a * tax offset under this Subdivision cannot be revoked. Amount of a first child tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.415 Formula for working out amount of tax offset The amount of your * tax offset under sections 61-355 and 61-440 for an income year is the amount (rounded up to the nearest whole dollar) worked out using the formula: where: "entitlement amount" has the meaning given by section 61-420. "total of the entitlement days" has the meaning given by section 61-425. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.420 Component of formula--entitlement amount (1) In section 61-415, the entitlement amount is the amount (rounded up to the nearest whole dollar) worked out using the formula: where: "base amount" is the lesser of: (a) one-fifth of your basic income tax liability for your * base year (as worked out in step 2 of the method statement in subsection 4-10(3)); and (b) $2,500. (2) However, if: (a) the current income year is not your * base year; and (b) your taxable income for the current income year is not more than $25,000; and (c) the amount worked out under subsection (1) is less than $500; then the entitlement amount is $500. (3) If the amount worked out under subsection (1) is negative, then, unless subsection (2) applies, the entitlement amount is nil. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.425 Component of formula--total of the entitlement days (1) In section 61-415, the total of the entitlement days is the total number of days for which the primary person (see subsection (3)) had a * primary entitlement to a *tax offset under either or both of sections 61-355 and 61-440 for the child for the income year. (2) In addition, if: (a) the relevant * child event happened in the primary person's * base year; and (b) the primary person did not transfer the entitlement under section 61-385 for the primary person's base year; and (c) the relevant child turns 5 during the income year; the total of the entitlement days also includes the number of days in the base year for which the primary person had a primary entitlement to a * tax offset under either or both of sections 61-355 and 61-440 for the child. (3) In this section, the primary person is: (a) if you are claiming the offset as a person who has a * primary entitlement to the offset for the child--you; or (b) if you are claiming the offset as a transferee under section 61-400--the transferor. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.430 What is your base year? Primary entitlement (1) Your base year for an entitlement to a * tax offset for a child under section 61-355 is: (a) if you were an Australian resident at any time in the income year just before the income year in which the * child event for the child happened (the event year)--the income year just before the event year; and (b) otherwise--the event year. Note: If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61-450). (2) If paragraph (1)(a) applies to you, you may choose the event year to be your base year, in the * approved form. A choice cannot be revoked. (3) A choice cannot be made: (a) after you have claimed the * tax offset under section 61-355 for any income year; or (b) after you have transferred your entitlement to the tax offset under section 61-355 for any income year. Transferred entitlement (4) Your base year for an entitlement transferred to you under section 61-385 is the income year before the first income year for which the entitlement for the child was transferred to you. Additional tax offset if a child is in your care before you legally adopt the child INCOME TAX ASSESSMENT ACT 1997 - SECT 61.440 Additional tax offset if a child is in your care before you legally adopt the child (1) You are entitled to a * tax offset for a child for an income year if: (a) you meet the conditions in paragraph (3)(a) at any time in the income year; and (b) you meet the conditions in paragraphs (3)(b), (c) and (d). Note: You are not entitled to a tax offset under this section if section 61-455 applies to you. (2) To meet those conditions for a child at a given time is to have a primary entitlement to the * tax offset for the child at that time. (3) The conditions are that: (a) at the time: (i) the child is less than 5; and (ii) the child is in your care (but you are not legally responsible for the child); and (iii) you are an Australian resident; and (b) you meet the conditions in subsection 61-355(3) in relation to the child in that year or a later income year; and (c) you have become legally responsible for the child by adopting the child; and (d) the time is on or after 1 July 2001 and before 1 July 2004. Note: See section 61-445 for when a child is first in your care. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.445 When a child is first in your care For the purposes of sections 61-440 and 61-450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.450 What is your base year if a child is in your care before you legally adopt the child? Your base year can relate to a year during which a child was in your care before you adopted the child (1) This section defines your base year if you are entitled to a * tax offset for a child under section 61-440 (which is where a child is in your care before you legally adopt the child). Primary entitlement (2) Your base year for a * tax offset under sections 61-355 and 61-440 is: (a) if you were an Australian resident at any time in the income year (the previous income year) just before the income year in which the child was first in your care--the later of the following years: (i) the previous income year; (ii) the income year commencing on 1 July 2000; and (b) otherwise--the later of the following years: (i) the earliest income year in which you were an Australian resident and the child was in your care; (ii) the income year commencing on 1 July 2001. Note: See section 61-445 for when a child is first in your care. (3) If paragraph (2)(a) applies to you, you may choose, in the * approved form, the later of the following years to be your base year: (a) the year the child was first in your care; (b) the income year commencing on 1 July 2001. A choice cannot be revoked. (4) A choice cannot be made: (a) after you have claimed the * tax offset under section 61-440 for any income year; or (b) after you have transferred your entitlement to the tax offset under section 61-440 for any income year. Transferred entitlement (5) Your base year for an entitlement transferred to you under section 61-385 is the income year before the first income year for which the entitlement for the child was transferred to you. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.455 Old Subdivision applies if you would be worse off This Subdivision as in force on 30 June 2004 (instead of this Subdivision as amended by Schedule 10 to the Tax Laws Amendment (2004 Measures No. 6) Act 2005) continues to apply to you if the amount of all * tax offsets to which you would be entitled under this Subdivision as in force on that date is more than the amount of all tax offsets to which you would be entitled under the amended Subdivision. Note: The effect of this is that: (a) you are only entitled to a tax offset in respect of days for which you are legally responsible for the child (and not days during which the child is in your care); and (b) your base year is the income year in which the child event happened or the year before. Guide to Subdivision 61-IA INCOME TAX ASSESSMENT ACT 1997 - SECT 61.460 What this Subdivision is about You are entitled to a tax offset for an income year for child care fees if you meet certain conditions. The amount of the offset is 30% of the difference between the amounts for each child, in the previous year, of child care fees incurred and child care benefit entitlement. This is subject to an indexed cap of $4,000 per child. If the amount of the tax offset exceeds the amount of your income tax liability, the excess may be transferred to your spouse as a tax offset. Table of sections Operative provisions 61-465 Object of this Subdivision Entitlement to the child care tax offset 61-470 Who is entitled to the tax offset 61-475 Meaning of approved child care 61-480 Meaning of entitled to child care benefit and entitlement to child care benefit Amount of the child care tax offset 61-485 Amount of the child care tax offset 61-490 Component of formula--approved child care fees 61-495 Component of formula--child care offset limit Transfer of entitlement to unused balance of child care tax offset 61-496 Entitlement to transfer 61-497 Form of transfer Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 61.465 Object of this Subdivision The object of this Subdivision is to provide a * tax offset to assist families with the cost of child care. Entitlement to the child care tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.470 Who is entitled to the tax offset (1) You are entitled to a * tax offset for an income year ending before 1 July 2007 (the child care offset year) for * approved child care provided in the previous income year (the child care base year) if: (a) you are an individual; and (b) there is at least 1 * child care base week for you and a particular child in the child care base year. Example: If there is at least 1 child care base week for you and a child in the 2004-2005 income year (the child care base year), you are entitled to a tax offset for the child for the 2005-2006 income year (the child care offset year). (2) A week is a child care base week for you and a particular child in the child care base year if: (a) the week starts on a Monday in the child care base year (whether or not it finishes in the child care base year); and (b) you are * entitled to child care benefit for *approved child care provided for the child in the week; and (c) one or more of the following limits applies under Subdivision G of Division 4 of Part 3 of the A New Tax System (Family Assistance) Act 1999 to your * entitlement to child care benefit for that week: (i) the 50 hour limit (see section 54 of that Act); (ii) the more than 50 hour limit (see section 55 of that Act); (iii) the 24 hour care limit for a particular session (or sessions) of care (see section 56 of that Act). Note: If one of the paragraph (c) limits applies, you satisfy the paragraph (c) condition even if you have not used approved child care for the child during the week up to the full extent of the limit. (3) If you are * entitled to child care benefit subject to a limit of only 24 hours for a week under subsection 53(3) of the A New Tax System (Family Assistance) Act 1999, the condition mentioned in paragraph (2)(c) is not satisfied for the week. (4) The 50 hour limit is taken, for the purposes of paragraph (2)(c), to apply to your entitlement for child care benefit for the week if it would have applied but for the fact that you failed to meet the requirements of paragraph 17A(1)(b) of the A New Tax System (Family Assistance) Act 1999 in relation to the week. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.475 Meaning of approved child care (1) Approved child care, for a particular child, is care provided for the child by a child care service that is approved under section 195 of the A New Tax System (Family Assistance) (Administration) Act 1999. (2) Approved child care is also taken to have been provided by such a child care service for the child during a period of absence from care if section 10 or 10A of the A New Tax System (Family Assistance) Act 1999 applies to the period of absence. Note: If a child is absent from care during a period for which child care fees are incurred for the child, but neither of sections 10 or 10A of the A New Tax System (Family Assistance) Act 1999 apply to the period of absence, approved child care would not be taken to have been provided for the child. As a result, child care fees incurred for the child during the period would not count as approved child care fees for which the child care tax offset is payable (see sections 61-485 and 61-490). INCOME TAX ASSESSMENT ACT 1997 - SECT 61.480 Meaning of entitled to child care benefit and entitlement to child care benefit (1) You are entitled to child care benefit for * approved child care for a child as provided in this section, and not otherwise. The amount of your entitlement to child care benefit for the care is as provided in this section, and not otherwise. Note: Child care benefit is a benefit provided for by the A New Tax System (Family Assistance) Act 1999. General rule--actual determination of entitlement must have been made (2) You are only entitled to child care benefit for the care if you are so entitled because of a determination made under section 51B or 52E of the A New Tax System (Family Assistance) (Administration) Act 1999. The amount of your entitlement to child care benefit for the care is the amount worked out under that Act by reference to that determination. Entitlement based on fee reductions under a determination of conditional entitlement (3) However, if: (a) a determination (the conditional determination) has been made under section 50F of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are conditionally eligible for child care benefit by fee reduction for the care; and (b) under section 219A of that Act as it applies in relation to the determination, fees for the care have been reduced; you are, subject to subsections (4) and (5), taken to be entitled to child care benefit for the care. The amount of your entitlement to child care benefit for the care is the amount of the reduction. (4) Despite subsection (3), if: (a) a determination (the final determination) is subsequently made under section 51B of the A New Tax System (Family Assistance) (Administration) Act 1999 of your entitlement to be paid child care benefit by fee reduction for the care; and (b) the amount (the final determination amount) of your entitlement to child care benefit for the care, as worked out by reference to the final determination, differs from the amount of the reduction referred to in paragraph (3)(b); the amount of your entitlement to child care benefit for the care is taken to be, and always to have been, the final determination amount. (5) Despite subsection (3), if a determination is subsequently made under section 51C of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are not entitled to be paid child care benefit by fee reduction for the care, you are taken not to be, and never to have been, entitled to be paid any child care benefit for the care. Entitlement does not end with receipt (6) In applying this Act at a particular time in relation to yourself and the care, the fact that you have, by that time, received some or all of your entitlement to child care benefit for the care does not mean that you are no longer to be regarded as being entitled to child care benefit for the care. Later determinations, variations and substitutions to be taken into account (7) If, after applying this Act at a particular time in relation to yourself and the care, a determination mentioned in this section is made or varied, or is set aside and a new determination substituted, the question of your entitlement to child care benefit for the care is to be redetermined taking account of the making, variation or substitution. Amount of the child care tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.485 Amount of the child care tax offset The amount of your * tax offset for a child care offset year is worked out in this way: Method statement Step 1. For each child in relation to whom you are entitled to the * tax offset for the child care offset year, work out amounts in accordance with steps 2, 3 and 4. Step 2. Work out the total amount of your * approved child care fees for the child in each *child care base week for you and the child in the child care base year. Step 3. Work out the total amount of your * entitlement to child care benefit for *approved child care for the child in each * child care base week for you and the child in the child care base year. Step 4. Work out the lesser of the following amounts (the child offset) for the child: (a) the amount worked out using the formula: (b) the * child care offset limit for the child care base year. Step 5. Total the child offsets for each of those children. The result is the amount of your * tax offset for the child care offset year. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.490 Component of formula--approved child care fees General rule--approved child care fees for a child care base week for you and a child (1) The amount of your approved child care fees for a child for a * child care base week for you and the child is the amount of fees for * approved child care for the child during the week that are incurred by: (a) you; or (b) your partner, within the meaning of the A New Tax System (Family Assistance) Act 1999, during the week. Subject to subsection (2), it does not matter whether you are * entitled to child care benefit for all of that care. Special rule if the week is also a child care base week for your partner and the child (2) If the * child care base week is also a child care base week for your partner and the child, your approved child care fees for the week do not include any fees incurred by your partner for * approved child care, for the child in the week, for which you are not * entitled to child care benefit. If fee reduction applies, count unreduced amount of fees (3) If fees for * approved child care have been reduced under section 219A of the A New Tax System (Family Assistance) (Administration) Act 1999, then for this section, a reference to the fees incurred for the care is taken to be a reference to the fees that would have been incurred for the care if they had not been so reduced. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.495 Component of formula--child care offset limit (1) The child care offset limit for the 2004-2005 child care base year is $4,000. The limit is indexed annually. Note: Subdivision 960-M shows you how to index amounts. (2) In applying the indexation formula in subsection 960-275(1) to determine the child care offset limit for the 2005-2006 child care base year or a later child care base year, the relevant financial year is the child care base year rather than the child care offset year for which the offset is being calculated. Transfer of entitlement to unused balance of child care tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.496 Entitlement to transfer (1) You may transfer your entitlement to so much of your * tax offset as is equal to the excess to the individual who was your * spouse as at the last day of the child care offset year. Note: The excess part of a tax offset is worked out under Division 63. (2) If you make a transfer: (a) the transferee is entitled to the transferred part of the * tax offset for the child care offset year; and (b) you are no longer entitled to the transferred part of the tax offset. (3) A transfer cannot be revoked. (4) If you die during the child care offset year, the reference to your * spouse in subsection (1) is taken to be a reference to your spouse just before your death. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.497 Form of transfer (1) A transfer has effect only if you have applied for it in the * approved form. (2) The * approved form must require the inclusion of: (a) your * tax file number; and (b) the tax file number of the transferee; and (c) the transferee's signed consent to: (i) the transfer; and (ii) the disclosure of his or her tax file number in the form. (3) Subsection (2) does not limit what may be required by the * approved form. Guide to Subdivision 61-J INCOME TAX ASSESSMENT ACT 1997 - SECT 61.500 What this Subdivision is about This Subdivision provides a 25% tax offset on your income tax liability related to the business income of a small business entity with aggregated turnover of less than $75,000. Your entitlement to the offset varies depending on what kind of entity you are. The amount of your offset varies depending on: (a) whether your aggregated turnover is $50,000 or less or is more than $50,000; and (b) if you are an individual--whether you (and your spouse, if you have a spouse) have significant income from sources other than your small business. You may be entitled to more than 1 tax offset. For example, if you are an individual running your own small business, you may be entitled to a tax offset under section 61-505. If you are also a beneficiary of a trust that is a small business entity, you may be entitled to a tax offset under section 61-520. Table of sections Operative provisions 61-505 25% entrepreneurs' tax offset: individual or company 61-510 25% entrepreneurs' tax offset: partner in a partnership 61-515 25% entrepreneurs' tax offset: trustee of a trust 61-520 25% entrepreneurs' tax offset: beneficiary of a trust 61-523 25% entrepreneurs' tax offset--reduction for non-small business income 61-525 Meaning of net small business income and small business entity turnover Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 61.505 25% entrepreneurs' tax offset: individual or company Entitlement (1) You are entitled to a * tax offset for an income year if: (a) you are an individual or a company; and (b) you are a * small business entity for the year; and (c) your * aggregated turnover for the year is less than $75,000; and (d) you have * net small business income for the year. Amount (2) The amount of your * tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: If that percentage is more than 100%, the small business percentage is 100%. Step 4. If your * aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your * tax offset. Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. Step 5. If your * aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: The amount of your * tax offset is worked out using the formula: Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. Example: A company runs a local sports business. The company is a small business entity for the year. The company's aggregated turnover for the year is $50,000, the company's net small business income for the year is $40,000 and the company's taxable income for the year is $80,000. The company is entitled to a tax offset. The amount of the offset is worked out in this way: The step 1 amount is $80,000. The step 2 amount is $6,000: 25% of the company's basic income tax liability of $24,000 ($80,000 multiplied by the 30% company tax rate). The step 3 small business percentage is: The amount of the company's tax offset (step 4) is: INCOME TAX ASSESSMENT ACT 1997 - SECT 61.510 25% entrepreneurs' tax offset: partner in a partnership Entitlement (1) You are entitled to a * tax offset for an income year if: (a) you are a partner in a partnership during the year; and (b) the partnership is a * small business entity for the year; and (c) the partnership's * aggregated turnover for the year is less than $75,000; and (d) the partnership has * net small business income for the year; and (e) your assessable income for the year includes a share (your net small business income share) of that net small business income. Amount (2) The amount of your * tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the partnership's * aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your * tax offset. Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. Step 5. If the partnership's * aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: The amount of your * tax offset is worked out using the formula: Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.515 25% entrepreneurs' tax offset: trustee of a trust Entitlement (1) You are entitled to a * tax offset for an income year if: (a) you are a trustee of a trust during the year; and (b) the trust is a * small business entity for the year; and (c) the trust's * aggregated turnover for the year is less than $75,000; and (d) the trust has * net small business income for the year; and (e) you are liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 on a share (your net small business income share) of that net small business income. Amount (2) The amount of your * tax offset is worked out in this way: Method statement Step 1. Work out the * net income of the trust for the income year. Step 2. Work out 25% of the amount of income tax you are liable to pay for the year on that * net income (apart from any * tax offsets). Step 3. Work out the percentage (the small business percentage) using the formula: If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the trust's * aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your * tax offset. Step 5. If the trust's * aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: The amount of your * tax offset is worked out using the formula: INCOME TAX ASSESSMENT ACT 1997 - SECT 61.520 25% entrepreneurs' tax offset: beneficiary of a trust Entitlement (1) You are entitled to a * tax offset for an income year if: (a) you are a beneficiary of a trust during the year; and (b) the trust is a * small business entity for the year; and (c) the trust's * aggregated turnover for the year is less than $75,000; and (d) the trust has * net small business income for the year; and (e) your assessable income for the year includes a share (your net small business income share) of that net small business income. Amount (2) The amount of your * tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the trust's * aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your * tax offset. Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. Step 5. If the trust's * aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: The amount of your * tax offset is worked out using the formula: Note: If you are an individual, section 61-523 may reduce the amount of the tax offset. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.523 25% entrepreneurs' tax offset--reduction for non-small business income Reduce the amount of your * tax offset worked out under subsection 61-505(2), 61-510(2) or 61-520(2) by the amount worked out using the following formula (but not below nil), if: (a) you are an individual; and (b) the amount worked out using the formula is greater than nil: where: "non-ETO small business income" for the income year is worked out by: (a) adding up the following: (i) your taxable income for the year; (ii) your * reportable fringe benefits total for the year; (iii) your * reportable superannuation contributions (if any) for the year; (iv) your * total net investment loss for the year; and (b) subtracting: (i) in a case covered by subsection 61-505(2)--your * net small business income for the year; or (ii) in a case covered by subsection 61-510(2) or 61-520(2)--your net small business income share for the year (within the meaning of paragraph 61-510(1)(e) or 61-520(1)(e), whichever is applicable); and (c) adding the following in relation to each individual (if any) who, on the last day of the year, is your * spouse: (i) your spouse's taxable income for the year; (ii) your spouse's reportable fringe benefits total for the year; (iii) your spouse's reportable superannuation contributions (if any) for the year; (iv) your spouse's total net investment loss for the year. Note: ETO is short for 25% entrepreneurs' tax offset. "threshold amount" means: (a) $120,000 if: (i) on any day during the income year, you have a dependant (within the meaning of the definition of dependant in subsection 159P(4) of the Income Tax Assessment Act 1936, disregarding paragraph (a) (spouse) of that definition); or (ii) on the last day of the income year, you have a * spouse; or (b) otherwise--$70,000. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.525 Meaning of net small business income and small business entity turnover Net small business income (1) An entity's net small business income for an income year is the amount by which the entity's * small business entity turnover for the year is more than the sum of the entity's deductions attributable to that turnover. Small business entity turnover (2) An entity's small business entity turnover for an income year is the total * ordinary income that the entity *derives in the income year in the ordinary course of carrying on a * business. (3) In working out an entity's * small business entity turnover for an income year, do not include any amount that is * non-assessable non-exempt income under section 17-5 (which is about GST). Guide to Subdivision 61-K INCOME TAX ASSESSMENT ACT 1997 - SECT 61.550 What this Subdivision is about You may get a tax offset under this Subdivision if you are an Australian resident individual who is aged 55 or over at the end of the income year and who has worked during the year. The amount of the offset depends on the amount of your net income from working, but is up to a maximum of $500. (Basically, your net income from working is the total of amounts of assessable income that are mainly a reward for your personal efforts or skills, less any relevant deductions.) Table of sections Operative provisions 61-555 Object of this Subdivision 61-560 Entitlement to the mature age worker tax offset 61-565 The amount of the tax offset 61-570 Definition of net income from working Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 61.555 Object of this Subdivision The object of this Subdivision is to provide a * tax offset (subject to certain income conditions) as an incentive to Australians aged 55 or over to remain in work. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.560 Entitlement to the mature age worker tax offset You are entitled to a * tax offset for an income year if you are an Australian resident individual who is aged 55 or over at the end of the income year. Note: However, the amount of the tax offset is nil if you have no net income from working or your net income from working is over $63,000 (or $58,000 for the 2004-2005 income year). INCOME TAX ASSESSMENT ACT 1997 - SECT 61.565 The amount of the tax offset (1) If your * net income from working for the income year is equal to or less than $53,000, the amount of the * tax offset is the lesser of the amount worked out under the following formula and $500: (2) If your * net income from working for the income year is greater than $53,000, the amount of the * tax offset is the amount worked out under the following formula (but not below nil): Special rule for the 2004-2005 income year (3) For the 2004-2005 income year, references in subsections (1) and (2) to $53,000 are taken instead to be references to $48,000. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.570 Definition of net income from working (1) Your net income from working for an income year is the sum of the following amounts (excluding amounts covered by subsection (2)): (a) your assessable income for the year to the extent that it consists of the following: (i) * personal services income; (ii) assessable income from a * business you carry on; (iii) an amount included under section 393-10 as a result of the repayment of a * farm management deposit; (b) your * reportable fringe benefits total for the year; (c) the total of your * reportable employer superannuation contributions for the year; less the sum of any amounts you can deduct for the year to the extent that they relate to assessable income mentioned in subparagraph (a)(i) or (ii). (2) Your net income from working for an income year does not include your assessable income for the year to the extent that it consists of the following: (a) amounts of * superannuation lump sums or *employment termination payments; (b) amounts of * unused annual leave payments or *unused long service leave payments; (c) amounts of passive income (within the meaning of section 6 of the Income Tax Assessment Act 1936). Guide to Subdivision 61-L INCOME TAX ASSESSMENT ACT 1997 - SECT 61.575 What this Subdivision is about You may get a tax offset under this Subdivision if: (a) Medicare levy surcharge is payable by you for the current year; and (b) a substantial lump sum was paid to you in the current year; and (c) the lump sum accrued in whole or in part in a previous year. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your lump sums and your spouse's lump sums. Alternatively, you may get a tax offset under this Subdivision if your spouse gets a tax offset under this Subdivision. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your spouse's lump sums. Table of sections Operative provisions 61-580 Entitlement to a tax offset 61-585 The amount of a tax offset 61-590 Definition of MLS lump sums Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 61.580 Entitlement to a tax offset Tax offset for MLS lump sums paid to you (1) You are entitled to a * tax offset for the * current year if: (a) you are an individual; and (b) * Medicare levy surcharge is payable by you for the current year because of: (i) section 8B, 8C or 8D of the Medicare Levy Act 1986; or (ii) the A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999; and (c) your assessable income or * exempt foreign employment income for the current year includes one or more * MLS lump sums paid to you; and (d) the total of the MLS lump sums paid to you is greater than or equal to one-eleventh of the total of the following amounts: (i) your normal taxable income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) for the current year; (ii) your exempt foreign employment income for the current year; (iii) your * reportable fringe benefits total for the current year; (iv) the amounts that would be included in your assessable income for the current year if, and only if, subsection 271-105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored; (v) your * reportable superannuation contributions for the current year; (vi) your * total net investment loss for the current year. Note: The test in paragraph (d) is similar to the 10% test in paragraph 159ZRA(1)(b) of the Income Tax Assessment Act 1936, which also deals with a tax offset for lump sum payments in arrears. Tax offset for MLS lump sums paid to your spouse (2) You are also entitled to a * tax offset for the * current year if: (a) during all or part of the current year, you were married to an individual (within the meaning of section 3 of the Medicare Levy Act 1986 or section 7 of the A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999); and (b) the individual is entitled to a tax offset for the current year under subsection (1); and (c) * Medicare levy surcharge is payable by you for the current year because of: (i) section 8D of the Medicare Levy Act 1986; or (ii) Division 4 of Part 3 of the A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999; (which are about Medicare Levy surcharge for individuals who are married); and (d) you are not entitled to a tax offset for the current year under subsection (1); and (e) less of the Medicare levy surcharge referred to in paragraph (c) would be payable by you for the current year if the * MLS lump sums paid to the individual referred to in paragraph (a) were disregarded. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.585 The amount of a tax offset (1) The amount of a * tax offset under subsection 61-580(1) is the amount worked out using the following formula: where: "total Medicare levy surcharge" means the total of the * Medicare levy surcharge referred to in paragraph 61-580(1)(b) that is payable by you for the *current year. "total non-arrears Medicare levy surcharge" means the amount that would be the total Medicare levy surcharge if the * MLS lump sums paid to you (and the MLS lump sums paid to the individual referred to in paragraph 61-580(2)(a)) were disregarded. (2) The amount of a * tax offset under subsection 61-580(2) is the amount worked out using the following formula: where: "total family Medicare levy surcharge" means the total of the * Medicare levy surcharge referred to in paragraph 61-580(2)(c) that is payable by you for the *current year. "total non-arrears family Medicare levy surcharge" means the amount that would be the total family Medicare levy surcharge if the * MLS lump sums referred to in paragraph 61-580(2)(e) were disregarded. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.590 Definition of MLS lump sums Both of the following are MLS lump sums paid to an individual: (a) a lump sum payment of eligible income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) that is included in the individual's assessable income for the * current year (but only to the extent that it accrued in an earlier income year); (b) a lump sum payment that is included in the individual's * exempt foreign employment income for the current year (but only to the extent that it accrued during a period ending more than 12 months before the date on which it was paid). Guide to Subdivision 61-M INCOME TAX ASSESSMENT ACT 1997 - SECT 61.600 What this Subdivision is about You may get a refundable tax offset for education expenses incurred for a school student in your care, or for yourself if you are an independent student. There is a limit on the amount of the tax offset. Education expenses over the limit can be taken into account in the next year of income. Table of sections Entitlement to education expenses tax offset 61-610 Entitlement to education expenses tax offset 61-620 Eligibility in respect of another individual 61-630 Schooling requirement 61-640 Education expenses Amount of education expenses tax offset 61-650 Amount of education expenses tax offset 61-660 Education expenses tax offset limit 61-670 Shared care 61-680 Excess education expenses Entitlement to education expenses tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.610 Entitlement to education expenses tax offset Entitlement in respect of another individual (1) You are entitled to a * tax offset for an income year if: (a) you satisfy subsection 61-620(1), (2), (3) or (4) on a day in the income year for an individual; and (b) the individual satisfies the schooling requirement in section 61-630 on that day; and (c) an expense covered by section 61-640 for the individual's education is incurred on that day. Entitlement for independent students (2) You are also entitled to a * tax offset for an income year if: (a) on a day in the income year you are receiving: (i) payments under a prescribed educational scheme (within the meaning of the Social Security Act 1991); or (ii) a social security pension (within the meaning of that Act); or (iii) a social security benefit (within the meaning of that Act); or (iv) payments under a program included in the programs known as Labour Market Programs; and (b) an independence requirement (however described) that you satisfy is relevant to the amount of the payment; and (c) on that day you are: (i) an Australian resident (within the meaning of the Social Security Act 1991) or a special category visa holder (within the meaning of the Migration Act 1958); and (ii) residing in Australia; and (d) you are aged under 25 on that day; and (e) you satisfy the schooling requirement in section 61-630 on that day; and (f) another individual or entity is not entitled to a tax offset for the income year for that day in respect of you under subsection (1); and (g) an expense covered by section 61-640 for your education is incurred on that day. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.620 Eligibility in respect of another individual You are entitled to Family Tax Benefit (Part A) (1) You satisfy this section on a day in an income year for an individual if: (a) you are entitled to be paid family tax benefit for the individual in relation to that day under the A New Tax System (Family Assistance) (Administration) Act 1999; and (b) your daily rate of family tax benefit for that day consists of, or includes, a Part A rate worked out under Part 2 or 3 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 that is greater than nil. You care for an individual entitled to certain payments (2) You satisfy this section on a day in an income year for an individual if: (a) one or more of the following: (i) payments under a prescribed educational scheme (within the meaning of the Social Security Act 1991); or (ii) a social security pension (within the meaning of that Act); or (iii) a social security benefit (within the meaning of that Act); or (iv) payments under a program included in the programs known as Labour Market Programs; is received on that day by the individual, or by you or another person on the individual's behalf; and (b) the individual would be your FTB child (within the meaning of Subdivision A of Division 1 of Part 3 of the A New Tax System (Family Assistance) Act 1999) on that day if that payment were disregarded. Approved care organisation (3) An approved care organisation (within the meaning of the A New Tax System (Family Assistance) Act 1999) satisfies this section on a day in an income year for an individual if the approved care organisation is entitled, under the A New Tax System (Family Assistance) (Administration) Act 1999, to be paid family tax benefit for that individual on that day. Individual finishing full-time schooling--cut-out amount disregarded (4) You satisfy this section on a day in an income year for an individual if: (a) the individual satisfies the schooling requirement in section 61-630 on that day; and (b) during the income year, the individual ceased to be covered by either subsection 61-630(2) or (4); and (c) the individual was not covered by either of those subsections at the end of the year of income; and (d) the Commissioner is of the opinion that you would satisfy one or more of subsections (1), (2) and (3) for the individual on that day if: (i) paragraph (a) of item 2 of the table in subsection 22A(1) of the A New Tax System (Family Assistance) Act 1999 (which deals with the cut-out amount) were disregarded; or (ii) for approved care organisations (within the meaning of the A New Tax System (Family Assistance) Act 1999)--paragraph (a) of item 2 of the table in subsection 35(1) of that Act (which also deals with the cut-out amount) were disregarded. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.630 Schooling requirement (1) An individual satisfies the schooling requirement in this section on every day in a 6 month period beginning on 1 July or 1 January if there is at least one day in that 6 month period on which the individual: (a) is covered by subsection (2) or (4); and (b) attended the course of study or instruction, or received the home schooling, referred to in that subsection. Primary school student (2) An individual is covered by this section if the individual is a student enrolled or registered: (a) in a course of study or instruction that is a primary course within the meaning of the * GST Act; or (b) with the education authority of the State or Territory in which the individual resides as a home schooled student (however described) allocated to the primary level of education; or (c) in a course of study or instruction to which subsection (3) applies. (3) The * Education Minister may, by legislative instrument, determine that a course of study or instruction is a course to which this subsection applies. Secondary school student (4) An individual is covered by this section if the individual is a student enrolled or registered: (a) in a course of study or instruction that is a secondary course within the meaning of the * GST Act; or (b) with the education authority of the State or Territory in which the individual resides as a home schooled student (however described) allocated to the secondary level of education; or (c) in a course of study or instruction to which subsection (5) applies. (5) The * Education Minister may, by legislative instrument, determine that a course of study or instruction is a course to which this subsection applies. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.640 Education expenses (1) An expense incurred on a day is covered for you by this section if: (a) the expense is incurred by: (i) you; or (ii) your partner (within the meaning of the Social Security Act 1991); and (b) the expense directly relates to the education of: (i) one or more individuals in relation to whom paragraphs 61-610(1)(a) and (b) are satisfied on the day; or (ii) if you are covered by paragraphs 61-610(2)(a), (b), (c), (d), (e) and (f) on the day--yourself; and (c) the expense is of a kind mentioned in subsection (4). (2) However, an expense is not covered by this section to the extent that the expense: (a) is deductible under this Act; or (b) is subject to a * tax offset under this Act (other than this Subdivision); or (c) is covered by a payment or property you receive, or are entitled to receive, as reimbursement or payment of your expenses under a benefit, grant or subsidy: (i) the provision of which was authorised under a * Commonwealth law or an instrument of a legislative character made under a Commonwealth law; or (ii) to which paragraph (3)(a) applies. (3) The regulations may provide the following: (a) that a benefit, grant or subsidy is a benefit, grant or subsidy to which this paragraph applies; (b) that an expense of a particular kind is not an expense covered by this section. (4) The expenses are those mentioned in column 3 of an item in the following table relating to a thing mentioned in column 2 of that item. Item Thing to which expense relates Kind of expense 1 Computer for: (a) home use (including, in the case of an individual who has no home, use in a setting that equates to a residential setting for the person); or (b) use in an educational institution in place of paper based educational material (a) cost of acquiring (whether by way of purchase, lease, hire or hire-purchase); and (b) cost of repairing; and (c) costs associated with running. 2 Computer-related equipment for a use referred to in item 1, including: (a) printers; and (b) disability aids (a) cost of acquiring (whether by way of purchase, lease, hire or hire-purchase); and (b) cost of repairing; and (c) costs associated with running. 3 Home internet connection (a) cost of establishing; and (b) cost of maintaining. 4 Item of computer software cost of acquiring (whether by way of purchase, lease, hire or hire-purchase). 5 School textbooks, other paper based school learning material and stationery cost of acquiring (whether by way of purchase, lease, hire or hire-purchase). 6 A tool of trade cost of acquiring (whether by way of purchase, lease, hire or hire-purchase). 7 Clothing (including hats) and footwear that is required or approved by a primary or secondary school to be worn as its school uniform cost of acquiring (whether by way of purchase, hire or hire-purchase). Amount of education expenses tax offset INCOME TAX ASSESSMENT ACT 1997 - SECT 61.650 Amount of education expenses tax offset (1) The amount of your * tax offset for an income year (the current year) is the amount (rounded up to the nearest whole dollar) that is the lesser of: (a) one half of the sum of: (i) all of the expenses covered for you by section 61-640 for the current year; and (ii) your expenses covered by section 61-680 (about excess education expenses) for the income year ending immediately before the current year; and (b) your offset limit under section 61-660 for the current year. Effect of shared care arrangements (2) If: (a) on a particular day, you and your partner (within the meaning of the Social Security Act 1991) (your partner) satisfy subsection 61-620(1) for an individual; and (b) a determination has been made under section 28 or 29 of the A New Tax System (Family Assistance) Act 1999 of your percentage, and of your partner's percentage, of the family tax benefit for the individual for a period that includes that day; and (c) an expense covered for you by section 61-640 was incurred on that day; for the purposes of subparagraph (1)(a)(i) you and your partner may each count only a portion of the expense corresponding to your percentage. (3) If: (a) on a particular day, you are a member of a couple (within the meaning of the Social Security Act 1991); and (b) both you and your partner (within the meaning of that Act) (your partner) satisfy subsection 61-620(2) or (4) for one or more individuals on that day; and (c) an expense covered for you by section 61-640 was incurred on that day; for the purposes of subparagraph (1)(a)(i) the expense only counts as follows: (d) if you and your partner have made a written agreement nominating one of you as the member who can claim the offset under this Subdivision in respect of the individual or individuals for a period including that day: (i) the nominated member may count the whole of each expense covered for you by section 61-640 incurred on that day; and (ii) the other member must not count any of the expense; or (e) if paragraph (d) does not apply--you and your partner may each count only half of the expense. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.660 Education expenses tax offset limit (1) Your offset limit is: (a) if you satisfy paragraphs 61-610(1)(a), (b) and (c) for one or more individuals in the current year--the sum of the amounts worked out under the method statement for each such individual; and (b) if you are an independent student covered by subsection 61-610(2)--the amount worked out for yourself under the method statement. Method statement Step 1. Start with this amount: (a) for an individual who satisfies the schooling requirement in subsection 61-630(4) (for secondary school students) on a day in the current year--$750; or (b) if paragraph (a) does not apply and the individual satisfies the schooling requirement in subsection 61-630(2) (for primary school students) on a day in the current year--$375. Note: The effect of step 1 is that the secondary school student starting amount applies for the whole year where an individual completes primary school in the first half of the financial year and starts secondary school in the second half of the financial year. Step 2. Add up the number of days in the current year on which: (a) paragraphs 61-610(1)(a) and (b) are satisfied for you and the individual; or Note: There are modifications to step 2(a) in section 61-670. (b) if you are an independent student covered by subsection 61-610(2)--paragraphs 61-610(2)(a), (b), (c), (d), (e) and (f) apply to you. Step 3. Divide the result of step 2 by the number of days in the current year. Round the result to 2 decimal places (rounding up if the third decimal place is 5 or more). Step 4. Multiply the result from step 1 by the result from step 3. (2) The amounts specified in step 1 of the method statement in subsection (1) are indexed annually. Note: Subdivision 960-M shows you how to index amounts. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.670 Shared care (1) This section modifies the operation of step 2 of the method statement in subsection 61-660(1). Modification for shared care determinations (2) If: (a) on a particular day, you satisfy subsection 61-620(1) for an individual; and (b) a determination has been made under section 28 or 29 of the A New Tax System (Family Assistance) Act 1999 of your percentage of the family tax benefit for the individual for a period that includes that day; and (c) step 2 applies to that day; only a portion of that day corresponding to that percentage may be counted for the purposes of step 2. (3) If: (a) on a particular day, you satisfy subsection 61-620(1) for an individual; and (b) you have a shared care percentage under section 59 of the A New Tax System (Family Assistance) Act 1999 for the individual for a period that includes that day; and (c) step 2 (including that step as affected by subsection (2)) applies to that day; only a portion of that day (or only a portion of the portion referred to in subsection (2)) corresponding to the shared care percentage may be counted for the purposes of step 2 (or that step as affected by subsection (2)). Modification for members of a couple (4) If: (a) on a particular day, you are a member of a couple (within the meaning of the Social Security Act 1991); and (b) both you and your partner (within the meaning of that Act) (your partner) satisfy subsection 61-620(2) or (4) for one or more individuals on that day; and (c) step 2 applies to that day; for the purposes of step 2 the day only counts as follows: (d) if you and your partner have made a written agreement nominating one of you as the member who can claim the offset under this Subdivision in respect of the individual or individuals for that period: (i) the nominated member may, subject to subsection (5), count the whole of each day in the period for each such individual; and (ii) the other member must not count any days in the period for each such individual; or (e) if paragraph (d) does not apply--only half of each day in the period may, subject to subsection (5), be counted. Modification for individuals not members of a couple (5) If you and one or more other entities (other than your partner (within the meaning of the Social Security Act 1991)) each satisfy subsection 61-620(2) or (4) for an individual on a day, you may only count for the purposes of step 2 (or that step as affected by subsection (4)) a portion of that day that is reasonable having regard to: (a) the objects of this subsection; and (b) the living arrangements of the individual. (6) The objects of subsection (5) are: (a) to determine the extent to which the individual was in your care on a day; and (b) to prevent double counting in distributing the tax offset under this Subdivision between you and others who share the care of the individual. INCOME TAX ASSESSMENT ACT 1997 - SECT 61.680 Excess education expenses (1) You have an amount covered by this section from an income year if the amount worked out under paragraph 61-650(1)(a) for the year exceeds your offset limit for the year under section 61-660. (2) The amount that is covered by this section is the lesser of: (a) all of the expenses covered for you by section 61-640 for the year that can be counted for the purposes of subparagraph 61-650(1)(a)(i); and (b) twice the amount of the excess. Note: The excess is worked out by comparing half of the education expenses to the offset limit (see section 61-650). Paragraph (b) doubles any excess so that the excess expenses have their original value and can be counted in full the next year. Example: A family with one child in full-time secondary schooling has incurred education expenses of $2,000 in an income year. Under section 61-650, these expenses are halved ($1,000) and then compared to the offset limit ($750). The excess of $250 is doubled under subsection (2) to restore it to the original expense amount. In the next year, the family can count this $500 of expenses towards the offset. Guide to Division 63 INCOME TAX ASSESSMENT ACT 1997 - SECT 63.1 What this Division is about This Division sets out some rules that are common to all tax offsets. Table of sections 63-10 Priority rules INCOME TAX ASSESSMENT ACT 1997 - SECT 63.10 Priority rules (1) If you have one or more * tax offsets for an income year, apply them against your basic income tax liability in the order shown in the table. To the extent that an amount of a tax offset remains, the table tells you what happens to it. Order of applying tax offsets Item Tax offset What happens to any excess 5 * Tax offset under section 160AAAA of the Income Tax Assessment Act 1936 (tax offset for low income aged persons) Your entitlement to it is transferred in accordance with regulations made under that Act 10 * Tax offset under section 160AAAB of the Income Tax Assessment Act 1936 (tax offset for low income aged persons--trustee assessed under section 98) Your entitlement to it is transferred in accordance with regulations made under that Act 15 * Tax offset under section 160AAA of the Income Tax Assessment Act 1936 (tax offset in respect of certain pensions) Your entitlement to it is transferred in accordance with regulations made under that Act 17 * Tax offset under section 159N of the Income Tax Assessment Act 1936 (rebate for certain low-income taxpayers) You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year 20 Any * tax offset not covered by another item in this table You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year 22 * Tax offset for * foreign income tax under Division 770 You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year 25 Child care * tax offset under Subdivision 61-IA You may transfer your entitlement to it to your * spouse (under sections 61-496 and 61-497) 30 Landcare and water facility * tax offset under the former Subdivision 388-A You may carry it forward to a later income year (under Division 65) 35 A *tax offset under Division 355 (about R&D) that is not covered by section 67-30 You may carry it forward to a later income year (under Division 65) 40 * Tax offset that is subject to the refundable tax offset rules (see Division 67) You can get a refund of the remaining amount 45 * Tax offset arising from payment of * franking deficit tax (see section 205-70) You may carry it forward to a later income year (under section 205-70) Note 1: Section 13-1 lists tax offsets. Note 2: Former Division 388 was repealed by the New Business Tax System (Capital Allowances--Transitional and Consequential) Act 2001. Note 4: The remaining amount of a carry forward tax offset may be reduced by section 65-30 or 65-35 to take account of net exempt income. Note 5: Tax offsets mentioned in items 5 and 10 are more commonly referred to as the Senior Australians Tax Offset. Note 6: Rules about applying the rebate for certain low-income taxpayers are set out in subsection 159N(4) of the Income Tax Assessment Act 1936. (2) Within each item, apply the tax offsets in the order in which they arose. Note: This would be relevant if you have carry forward tax offsets of the same category for different income years. Guide to Division 65 INCOME TAX ASSESSMENT ACT 1997 - SECT 65.10 What this Division is about This Division sets out the rules about carrying forward excess tax offsets to later income years. You can only carry forward certain tax offsets. Before you can apply a tax offset to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income. The same rules that prevent companies from using certain losses that are carried forward prevent companies from applying tax offsets that they have carried forward. Table of sections Operative provisions 65-30 Amount carried forward 65-35 How to apply carried forward tax offsets 65-40 When a company cannot apply a tax offset 65-50 Effect of bankruptcy 65-55 Deduction for amounts paid for debts incurred before bankruptcy Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 65.30 Amount carried forward The amount of the * tax offset that is carried forward is the amount of the excess worked out under Division 63. However, if you have a taxable income for the income year, reduce the tax offset by the following amount: INCOME TAX ASSESSMENT ACT 1997 - SECT 65.35 How to apply carried forward tax offsets (1) A * tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 4-10 in a later income year. (2) You apply a * tax offset that is carried forward to a later year in accordance with the priorities set out in Division 63 as if it were a tax offset for that later year. (3) Before you apply a * tax offset to reduce the amount of income tax that you pay in a later income year in which you have a taxable income, you must apply it to reduce to nil any * net exempt income for: (a) that later income year; or (b) any income year after the year in which the tax offset arose and before the later income year in which you had a taxable income but did not apply the tax offset to reduce the amount of income tax you had to pay. In reducing net exempt income, each 30 cents of tax offset reduces the net exempt income by $1. Note: Paragraph (b) would apply to cases such as where your taxable income was below your tax-free threshold or where you had other tax offsets that reduced your income tax to nil. (4) You can only apply a * tax offset that you have carried forward to the extent that it has not already been applied. Note: Section 65-40 contains special restrictions on applying carried forward tax offsets. INCOME TAX ASSESSMENT ACT 1997 - SECT 65.40 When a company cannot apply a tax offset (1) In working out its * tax offset for the * current year, a company cannot apply a * tax offset it has carried forward if, assuming: (a) the tax offset were a * tax loss of the company for the income year in which it became entitled to the tax offset; and (b) section 165-20 (deducting part of a tax loss) were disregarded; Subdivision 165-A would prevent the company from deducting it for the current year. Note: Subdivision 165-A deals with the deductibility of a company's tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year. (2) If subsection (1) prevents the company from applying the * tax offset, it can apply the part of the tax offset that it is reasonable to consider relates to a part of the income year in which it became entitled to the tax offset, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the tax offset. INCOME TAX ASSESSMENT ACT 1997 - SECT 65.50 Effect of bankruptcy (1) If during the * current year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; you cannot apply a * tax offset that you have carried forward from an earlier income year in working out the tax offset for the current year or a later income year. (2) Subsection (1) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. INCOME TAX ASSESSMENT ACT 1997 - SECT 65.55 Deduction for amounts paid for debts incurred before bankruptcy (1) If: (a) you pay an amount in the * current year for a debt that you incurred in an earlier income year; and (b) you have a * tax offset referred to in section 65-50 for that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax offset. (2) The total of the following amounts cannot exceed the total of the expenditure that the Commissioner is satisfied was taken into account in calculating the amount of the * tax offset that you are unable to apply because of section 66-50: (a) your deductions under subsection (1) for amounts paid in the * current year or an earlier income year for debts incurred in the income year for which you have the tax offset; and (b) the expenditure that the Commissioner is satisfied was taken into account in calculating any amounts of the tax offset that, apart from section 65-50, would have been applied in reducing your * net exempt income for the current year or earlier income years. Guide to Division 67 INCOME TAX ASSESSMENT ACT 1997 - SECT 67.10 What this Division is about If your total tax offsets exceed your basic income tax liability, and some of those offsets are subject to the refundable tax offset rules, you may get a refund instead of paying income tax (see section 63-10). This Division tells you which tax offsets are subject to the refundable tax offset rules. Table of sections Operative provisions 67-20 Which tax offsets this Division applies to 67-23 Refundable tax offsets 67-25 Refundable tax offsets--franked distributions 67-30 Refundable tax offsets--R&D Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 67.20 Which tax offsets this Division applies to This Division only applies to a * tax offset if it is stated to be subject to the refundable tax offset rules. INCOME TAX ASSESSMENT ACT 1997 - SECT 67.23 Refundable tax offsets The following * tax offsets are subject to the refundable tax offset rules: Refundable tax offsets Item Subject matter Tax offset 3 * principal beneficiary of a *special disability trust the * tax offset available under subsection 95AB(5) of the Income Tax Assessment Act 1936 5 private health insurance private health insurance tax offsets under Subdivision 61-G, other than those arising under subsection 61-205(2) 10 children first child tax offsets under Subdivision 61-I 12 education expenses the * tax offset available under Subdivision 61-M 15 no-TFN contributions income the * tax offset available under Subdivision 295-J 20 films the * tax offsets available under Division 376 23 National Rental Affordability Scheme the * tax offsets available under Division 380 25 National Urban Water and Desalination Plan urban water tax offset under Subdivision 402-W 30 life insurance company's subsidiary joining consolidated group the * tax offset available under subsection 713-545(5) Note 1: Subsection 61-205(2) of this Act deals with tax offsets for trustees who are assessed and liable to pay tax under section 98 of the Income Tax Assessment Act 1936. Note 2: For the tax offsets available under Division 207 and Subdivision 210-H (franked distributions), see section 67-25. Note 3: For the tax offsets available under Division 355 (about R&D), see section 67-30. INCOME TAX ASSESSMENT ACT 1997 - SECT 67.25 Refundable tax offsets--franked distributions (1) * Tax offsets available under Division 207 (which sets out the effects of receiving a * franked distribution) or Subdivision 210-H (which sets out the effects of receiving a * distribution *franked with a venture capital credit) are subject to the refundable tax offset rules, unless otherwise stated in this section. (1A) Where the trustee of a * non-complying superannuation fund or a * non-complying approved deposit fund is entitled to a *tax offset under Division 207 because a * franked distribution is made to, or *flows indirectly to, the trustee, the tax offset is not subject to the refundable tax offset rules. (1B) If: (a) the trustee of a trust to whom a * franked distribution * flows indirectly under subsection 207-50(4) is entitled to a * tax offset under Division 207 for an income year because of the distribution; and (b) the trustee is liable to be assessed under section 98 or 99A of the Income Tax Assessment Act 1936 on a share of, or all or a part of, the trust's * net income for that income year; the tax offset is not subject to the refundable tax offset rules. (1C) Where a * corporate tax entity is entitled to a *tax offset under Division 207 because a * franked distribution is made to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is an * exempt institution that is eligible for a refund; or (b) the entity is a * life insurance company and the * membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. (1D) Where a * corporate tax entity is entitled to a *tax offset under Division 207 because a * franked distribution *flows indirectly to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is an * exempt institution that is eligible for a refund; or (b) the entity is a * life insurance company and the company's interest in the * membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. (1DA) A * tax offset is not subject to the refundable tax offset rules if: (a) an entity is entitled to the tax offset under Division 207 because a * franked distribution is made, or *flows indirectly, to the entity; and (b) the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of: (i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) that relates to a foreign country and affects the entity; or (ii) subsection 6(1) of that Act, if there is no such agreement; and (c) the distribution is attributable to the permanent establishment. (1E) Where a * corporate tax entity is entitled to a *tax offset under Subdivision 210-H because a * distribution *franked with a venture capital credit is made to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is a * life insurance company; and (b) the * membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. INCOME TAX ASSESSMENT ACT 1997 - SECT 67.30 Refundable tax offsets--R&D (1) A * tax offset to which an *R&D entity is entitled under section 355-100 (about R&D) for an income year is subject to the refundable tax offset rules if the amount of the tax offset is worked out using the percentage in item 1 of the table in subsection 355-100(1). Note 1: Otherwise, the tax offset will be a non-refundable tax offset (see item 35 of the table in subsection 63-10(1)). Note 2: This subsection can apply to an entitlement under subsection 355-100(1) or (2). (2) Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if: (a) subsection (3) had not been enacted; and (b) the reference in subsection (1) to an * R&D entity were, by express provision, confined to an R&D entity that: (i) is a * constitutional corporation; or (ii) has its registered office (within the meaning of the Corporations Act 2001) or principal place of business (within the meaning of that Act) located in a Territory. (3) Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if: (a) subsection (2) had not been enacted; and (b) this Act applied so that * tax offsets under section 355-100 could only be worked out in respect of * R&D activities conducted or to be conducted: (i) solely in a Territory; or (ii) solely outside of Australia; or (iii) solely in a Territory and outside of Australia; or (iv) for the dominant purpose of supporting * core R&D activities conducted, or to be conducted, solely in a Territory. Table of Subdivisions Guide to Division 70 70-A What is trading stock 70-B Acquiring trading stock 70-C Accounting for trading stock you hold at the start or end of the income year 70-D Assessable income arising from disposals of trading stock and certain other assets 70-E Miscellaneous Guide to Division 70 INCOME TAX ASSESSMENT ACT 1997 - SECT 70.1 What this Division is about This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations: • you acquire an item of trading stock; • you carry on a business and hold trading stock at the start or the end of the income year; • you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances. Table of sections 70-5 The 3 key features of tax accounting for trading stock INCOME TAX ASSESSMENT ACT 1997 - SECT 70.5 The 3 key features of tax accounting for trading stock The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year. There are 3 key features: (1) You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock. (2) Those outgoings and earnings are on revenue account, not capital account. As a result: (a) the gross outgoings are usually deductible as general deductions under section 8-1 (when the trading stock becomes trading stock on hand); and (b) the gross earnings are usually assessable as ordinary income under section 6-5 (when the trading stock stops being trading stock on hand). (3) You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect: (a) you account for the value of your trading stock as assessable income; and (b) you carry that value over as a corresponding deduction for the next income year. Note: You may not have to bring to account that difference if you are a small business entity: see Division 328. Table of sections 70-10 Meaning of trading stock INCOME TAX ASSESSMENT ACT 1997 - SECT 70.10 Meaning of trading stock "Trading stock" includes: (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a * business; and (b) * live stock; but does not include a * Division 230 financial arrangement. Note 1: Shares in a PDF are not trading stock. See section 124ZO of the Income Tax Assessment Act 1936. Note 2: If a company becomes a PDF, its shares are taken not to have been trading stock before it became a PDF. See section 124ZQ of the Income Tax Assessment Act 1936. Table of sections 70-15 In which income year do you deduct an outgoing for trading stock? 70-20 Non-arm's length transactions 70-25 Cost of trading stock is not a capital outgoing 70-30 Starting to hold as trading stock an item you already own INCOME TAX ASSESSMENT ACT 1997 - SECT 70.15 In which income year do you deduct an outgoing for trading stock? (1) This section tells you in which income year to deduct under section 8-1 (about general deductions) an outgoing incurred in connection with acquiring an item of * trading stock. (The outgoing must be deductible under that section.) (2) If the item becomes part of your * trading stock on hand before or during the income year in which you incur the outgoing, deduct it in that income year. (3) Otherwise, deduct the outgoing in the first income year: (a) during which the item becomes part of your * trading stock on hand; or (b) for which an amount is included in your assessable income in connection with the disposal of that item. Note You can deduct your capital costs of acquiring land carrying trees or of acquiring a right to fell trees, to the extent that the trees are felled for sale, or for use in manufacture, by you. (This is because the trees will then usually become your trading stock.) See section 70-120. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.20 Non-arm's length transactions If: (a) you incur an outgoing that is directly attributable to your buying or obtaining delivery of an item of your * trading stock; and (b) you and the seller of the item did not deal with each other at arm's length; and (c) the amount of the outgoing is greater than the * market value of what the outgoing is for; the amount of the outgoing is instead taken to be that market value. This has effect for the purposes of applying this Act to you and also to the seller. Note 1: This section also affects the value of the item of trading stock at the end of an income year if you value it at its cost under section 70-45 (Value of trading stock at end of income year). Note 2: This section is disregarded in applying Division 13 (about transfer-pricing arrangements) of Part III of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.25 Cost of trading stock is not a capital outgoing An outgoing you incur in connection with acquiring an item of * trading stock is not an outgoing of capital or of a capital nature. Note: This means that paragraph 8-1(2)(a) does not prevent the outgoing from being a general deduction under section 8-1. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.30 Starting to hold as trading stock an item you already own (1) If you start holding as * trading stock an item you already own, but do not hold as trading stock, you are treated as if:. (a) just before it became trading stock, you had sold the item to someone else (at arm's length) for whichever of these amounts you elect: • its cost (as worked out under subsection (3) or (4)); • its * market value just before it became trading stock; and (b) you had immediately bought it back for the same amount. Example: You start holding a depreciating asset as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 40-D provides for the consequences of selling depreciating assets.) The same amount is normally a general deduction under section 8-1 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item's cost for the purposes of section 70-45 (about valuing trading stock at the end of the income year). Note: Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Parts 3-1 and 3-3 (about CGT). It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 118-25(2). However, it can if you elect market value. When you must make the election (2) You must make the election by the time you lodge your * income tax return for the income year in which you start holding the item as * trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.) However, the Commissioner can allow you to make it later (in either case). How to work out the item's cost (3) The item's cost is what would have been its cost for the purposes of section 70-45 (about valuing trading stock at the end of the income year) if it had been your * trading stock ever since you last acquired it. In working that out, disregard section 70-55 (about acquiring live stock by natural increase). (4) However, if you last acquired the item for no consideration, its cost is worked out using this table: Cost of item acquired for no consideration Item In this case: The cost is: 1 you acquired the item during or after the 1998-99 income year, and the acquisition involved a * CGT event the item's * market value when you last acquired it 2 you acquired the item before or during the 1997-98 income year, and the acquisition involved a disposal of the item to you within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936 the item's * market value when you last acquired it 3 your acquisition of the item involved the item: (a) devolving to you as someone's * legal personal representative; or (b) * passing to you as a beneficiary in someone's estate; and, if a * CGT event had happened in relation to the item just before you started holding it as * trading stock, a *capital gain or *capital loss could have resulted that would have been taken into account in working out your * net capital gain or * net capital loss for the income year of the event (a) if the person died during or after his or her 1998-99 income year--the dead person's * cost base for the item just before his or her death; or (b) if the person died before or during his or her 1997-98 income year--the dead person's indexed cost base (within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936) for the item just before his or her death (but worked out disregarding former section 160ZG (which affects the indexed cost base for a non-listed personal use asset) of that Act) 4 any other case where you last acquired the item for no consideration a nil amount Exceptions (5) Subsection (1) does not apply if you start holding any of the following as * trading stock because they are severed from land: (a) standing or growing crops; (b) crop-stools; (c) trees planted and tended for sale. (This does not prevent subsection (1) from applying to a severed item that you later start holding as * trading stock.) Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936: * subsection 47A(10) (which treats certain benefits as dividends paid by a CFC) * paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year). Table of sections General rules 70-35 You include the value of your trading stock in working out your assessable income and deductions 70-40 Value of trading stock at start of income year 70-45 Value of trading stock at end of income year Special valuation rules 70-50 Valuation if trading stock obsolete etc. 70-55 Working out the cost of natural increase of live stock 70-60 Valuation of horse breeding stock 70-65 Working out the horse opening value and the horse reduction amount General rules INCOME TAX ASSESSMENT ACT 1997 - SECT 70.35 You include the value of your trading stock in working out your assessable income and deductions (1) If you carry on a * business, you compare: (a) the * value of all your * trading stock on hand at the start of the income year; and (b) the * value of all your * trading stock on hand at the end of the income year. Note: You may not need to do this stocktaking if you are a small business entity: see Division 328. (2) Your assessable income includes any excess of the * value at the end of the income year over the value at the start of the income year. (3) On the other hand, you can deduct any excess of the * value at the start of the income year over the value at the end of the income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.40 Value of trading stock at start of income year (1) The value of an item of * trading stock on hand at the start of an income year is the same amount at which it was taken into account under this Division or Subdivision 328-E (about trading stock for small business entities) at the end of the last income year. (2) The value of the item is a nil amount if the item was not taken into account under this Division or Subdivision 328-E (about trading stock for small business entities) at the end of the last income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.45 Value of trading stock at end of income year (1) You must elect to value each item of * trading stock on hand at the end of an income year at: (a) its * cost; or (b) its market selling value; or (c) its replacement value. Note: An item's market selling value at a particular time may not be the same as its market value. (1A) In working out the * cost, market selling value or replacement value of an item of * trading stock (other than an item the *supply of which cannot be a * taxable supply) at the end of an income year, disregard an amount equal to the amount of the * input tax credit (if any) to which you would be entitled if: (a) you had * acquired the item at that time; and (b) the acquisition had been solely for a * creditable purpose; and Note: Some assets, such as shares, cannot be the subject of a taxable supply. (2) The rest of this Subdivision deals with cases where the normal operation of this section is modified, or where a different valuation method may or must be used. The table sets out other cases where that happens because of provisions outside this Subdivision. Rules about the value of trading stock Item For this situation: See: 2 In working out the attributable income of a non-resident trust estate, trading stock is taken to be valued at cost. Section 102AAY of the Income Tax Assessment Act 1936 3 In working out the attributable income of a controlled foreign corporation, the corporation must value at cost. Section 397 of the Income Tax Assessment Act 1936 4 Some anti-avoidance provisions reduce the amount that is taken to be the cost of an item of trading stock. Subsections 52A(7), 82KH(1N), 82KL(6) and 100A(6B) of the Income Tax Assessment Act 1936 5 The value of the item at the end of an income year may be the same as at the start of the year for a small business entity Subdivision 328-E of this Act Special valuation rules INCOME TAX ASSESSMENT ACT 1997 - SECT 70.50 Valuation if trading stock obsolete etc. You may elect to value an item of your * trading stock below all the values in section 70-45 if: (a) that is warranted because of obsolescence or any other special circumstances relating to that item; and (b) the value you elect is reasonable. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.55 Working out the cost of natural increase of live stock (1) The cost of an animal you hold as * live stock that you acquired by natural increase is whichever of these you elect: (a) the actual cost of the animal; (b) the cost prescribed by the regulations for each animal in the applicable class of live stock. (2) However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase, its cost is the greater of: (a) the amount worked out under subsection (1); and (b) the part of the service fee that is attributable to your acquiring the horse. (3) An election under this section must be made by the time you lodge your * income tax return for the income year in which you acquired the animal. However, the Commissioner can allow you to make it later. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.60 Valuation of horse breeding stock (1) For a horse at least 3 years old that you acquired under a contract and hold for breeding, you can elect a value other than the values in section 70-45. (2) The value you can elect for the horse at the end of the income year is worked out using the table: Value of horse breeding stock If the horse is: ... you can value it at this amount: female 12 years or over $1 any other horse the * horse opening value less the *horse reduction amount (see section 70-65) (3) However, if the value worked out under subsection (2) would be less than $1, you must elect the value of $1. (4) A horse's age is to be measured in whole years as at the end of the relevant income year. The age of a horse not born on 1 August is determined as if the horse had been born on the last 1 August before it was actually born. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.65 Working out the horse opening value and the horse reduction amount (1) The horse opening value is: (a) if the horse has been your * live stock ever since the start of the income year--its * value as *trading stock at the start of the income year; or (b) otherwise--the horse's base amount (see subsection (3)). (2) The horse reduction amount is worked out as follows: (a) for female horses under 12 years of age: (b) for any male horse: (3) In this section: "base amount" is the lesser of: (a) the horse's * cost; and (b) the horse's * adjustable value when it most recently became your * live stock. "breeding days" is the number of whole days in the income year since you most recently began to hold the horse for breeding. "nominated percentage" is any percentage, up to 25%, you nominate when you make the election in section 70-60. "reduction factor" is the greater of: (a) 3; and (b) the difference between 12 and the horse's age when you most recently began to hold it for breeding. Guide to Subdivision 70-D INCOME TAX ASSESSMENT ACT 1997 - SECT 70.75 What this Subdivision is about Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances. This Subdivision treats certain other assets in the same way as trading stock. Table of sections 70-80 Why the rules in this Subdivision are necessary Operative provisions 70-85 Application of this Subdivision to certain other assets 70-90 Assessable income on disposal of trading stock outside the ordinary course of business 70-95 Purchase price is taken to be market value 70-100 Notional disposal when you stop holding an item as trading stock 70-105 Death of owner 70-110 You stop holding an item as trading stock but still own it 70-115 Compensation for lost trading stock INCOME TAX ASSESSMENT ACT 1997 - SECT 70.80 Why the rules in this Subdivision are necessary (1) When you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 6-5) as ordinary income. (2) If an item stops being your trading stock for certain other reasons, an amount is generally included in your assessable income to balance the reduction in trading stock on hand, which is a transaction on revenue account. (3) The other reasons for an item to stop being your trading stock are: (a) you dispose of it outside the ordinary course of * business; or (b) interests in it change; or (c) you die; or (d) you stop holding it as trading stock. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 70.85 Application of this Subdivision to certain other assets This Subdivision (except section 70-115) applies to certain assets of a * business as if they were *trading stock on hand of the entity that carries on that business. The assets are: (a) standing or growing crops; and (b) crop-stools; and (c) trees planted and tended for sale. Note: Section 70-115 assesses insurance or indemnity amounts for lost trading stock. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.90 Assessable income on disposal of trading stock outside the ordinary course of business (1) If you dispose of an item of your * trading stock outside the ordinary course of a * business: (a) that you are carrying on; and (b) of which the item is an asset; your assessable income includes the * market value of the item on the day of the disposal. (1A) If the disposal is the giving of a gift of property by you for which a valuation under section 30-212 is obtained, you may choose that the * market value is replaced with the value of the property as determined under the valuation. You can only make this choice if the valuation was made no more than 90 days before or after the disposal. (2) Any amount that you actually receive for the disposal is not included in your assessable income (nor is it * exempt income). Note 1: In the case of an asset covered by section 70-85 (which applies this Subdivision to certain other assets), the disposal will usually involve disposing of the land of which the asset forms part. Note 2: For certain disposals of live stock by primary producers, special rules apply: see Subdivision 385-E. Note 3: If the disposal is by way of gift, you may be able to deduct the gift: see Division 30 (Gifts). Note 4: If the disposal is of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70-120. Note 5: This section and section 70-95 also apply to disposals of certain items on hand at the end of 1996-97 that are not trading stock but were trading stock as defined in the Income Tax Assessment Act 1936: see section 70-10 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.95 Purchase price is taken to be market value If an entity disposes of an item of the entity's * trading stock outside the ordinary course of * business, the entity acquiring the item is treated as having bought it for the amount included in the disposing entity's assessable income under section 70-90. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.100 Notional disposal when you stop holding an item as trading stock (1) An item of * trading stock is treated as having been disposed of outside the ordinary course of * business if it stops being trading stock on hand of an entity (the transferor) and, immediately afterwards: (a) the transferor is not the item's sole owner; but (b) an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item. Example: A grocer decides to take her daughters into partnership with her. Her trading stock becomes part of the partnership assets, owned by the partners equally. As a result, it becomes trading stock on hand of the partnership instead of the grocer. This section treats the grocer as having disposed of the trading stock to the partnership outside the ordinary course of her business. Note: If the transferor is the item's sole owner after it stops being trading stock on hand of the transferor, section 70-110 applies instead of this section. (2) As a result, the transferor's assessable income includes the * market value of the item on the day it stops being * trading stock on hand of the transferor. (3) The entity or entities (the transferee) that own the item immediately after it stops being * trading stock on hand of the transferor are treated as having bought the item for the same value on that day. Election to treat item as disposed of at closing value (4) However, an election can be made to treat the item as having been disposed of for what would have been its * value as *trading stock of the transferor on hand at the end of an income year ending on that day. (5) If this election is made, this * value is included in the transferor's assessable income for the income year that includes that day. The transferee is treated as having bought the item for the same value on that day. (6) This election can only be made if: (a) immediately after the item stops being * trading stock on hand of the transferor, it is an asset of a * business carried on by the transferee; and (b) immediately after the item stops being * trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item's * market value on that day; and (c) the * value elected is less than that market value; and (d) the item is not a thing in action. (7) Also, the election can only be made before 1 September following the end of the * financial year in which the item stops being * trading stock on hand of the transferor. However, the Commissioner can allow the election to be made later. (8) An election must be in writing and signed by or on behalf of each of: (a) the entities that own the item immediately before it stops being * trading stock on hand of the transferor; and (b) the entities that own it immediately afterwards. (9) If a person whose signature is required for the election has died, the * legal personal representative of that person's estate may sign instead. When election has no effect (10) An election has no effect if: (a) the item stops being * trading stock on hand of the transferor outside the course of ordinary family or commercial dealing; and (b) the * consideration receivable by the transferor (or by any of the entities constituting the transferor) substantially exceeds what would reasonably be expected to be the consideration receivable by the entity concerned if the * market value of the item immediately before it stops being * trading stock on hand of the transferor were the *value elected under subsection (4). Note: Section 960-255 may be relevant to determining family relationships for the purposes of paragraph (10)(a). (11) Consideration receivable by an entity means so much of the value of any benefit as it is reasonable to expect that the entity will obtain in connection with the item ceasing to be * trading stock on hand of the transferor. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.105 Death of owner (1) When you die, your assessable income up to the time of your death includes the * market value at that time of the *trading stock of your * business (if any). Note: In the case of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70-120. (2) The entity on which the * trading stock devolves is treated as having bought it for its * market value at that time. (3) However, your * legal personal representative can elect to have included in your assessable income (instead of the * market value) the amount that would have been the * value of the *trading stock at the end of an income year ending on the day of your death. (4) In the case of an asset covered by section 70-85 (which applies this Subdivision to certain other assets), your * legal personal representative can elect to have a nil amount included in your assessable income (instead of the * market value). (5) Your * legal personal representative can make an election only if: (a) the * business is carried on after your death; and (b) the * trading stock continues to be held as trading stock of that business, or the asset continues to be held as an asset of that business, as appropriate. (6) If an election is made, the entity on which the * trading stock devolves is treated as having bought it for the amount referred to in subsection (3) or (4). (7) An election can only be made on or before the day when your * legal personal representative lodges your * income tax return for the period up to your death. However, the Commissioner can allow it to be made later. INCOME TAX ASSESSMENT ACT 1997 - SECT 70.110 You stop holding an item as trading stock but still own it If you stop holding an item as * trading stock, but still own it, you are treated as if: (a) just before it stopped being trading stock, you had sold it to someone else (at arm's length and in the ordinary course of business) for its * cost; and (b) you had immediately bought it back for the same amount. Example 1: You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock. Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption. Example 2: You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock. You are also treated as having bought the item for the same amount, which is relevant to working out the item's cost for capital allowance purposes (see Subdivision 40-C) and the item's cost base for CGT purposes (see Division 110). Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936: * subsection 47A(10) (which treats certain benefits as dividends paid by a CFC) * paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year). INCOME TAX ASSESSMENT ACT 1997 - SECT 70.115 Compensation for lost trading stock Your assessable income includes an amount that: (a) you receive by way of insurance or indemnity for a loss of * trading stock; and (b) is not assessable as * ordinary income under section 6-5. Table of sections 70-120 Deducting capital costs of acquiring trees INCOME TAX ASSESSMENT ACT 1997 - SECT 70.120 Deducting capital costs of acquiring trees (1) This section gives you deductions for your capital costs of acquiring land carrying trees or of acquiring a right to fell trees. Note: This section is included in this Division because: * trees felled for sale, or for use in manufacture, by you will usually become your trading stock; and * before they are felled, the trees are covered by sections 70-90 and 70-105 because of section 70-85. Land carrying trees (2) You can deduct the amount you paid to acquire land carrying trees if: (a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the * purpose of producing assessable income; or (b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of * royalty; or (c) the * market value of some or all of the trees is included in your assessable income for the income year by section 70-90 (because you disposed of the trees outside the ordinary course of * business) or section 70-105 (because of your death). (It does not matter when you acquired the land.) Note: The market value of trees is not included in your assessable income for the income year by section 70-105 (because of your death) if your legal personal representative elects under subsection 70-105(4) to have a nil amount included instead. Right to fell trees (3) You can deduct the amount you paid to acquire a right to fell trees if: (a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the * purpose of producing assessable income; or (b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of * royalty. (It does not matter when you acquired the right.) How much you can deduct for costs of acquiring land or right (4) You can deduct for the income year so much of the amount you paid as is attributable to the trees covered by a paragraph of subsection (2) or (3). (5) If you can deduct an amount because of paragraph (2)(c), you can also deduct for the income year so much of any other capital expenditure you incurred as is attributable to acquiring the trees covered by that paragraph (except so far as you have deducted it, or can deduct it, for any income year under a provision of this Act outside this section). No deduction for carbon sink forests (5A) You cannot deduct under this section so much of an amount you paid or incurred as is attributable to the establishment of trees for which any entity has deducted, or can deduct, an amount for any income year under Subdivision 40-J. Non-arm's length transactions (6) If: (a) you can deduct an amount under this section for expenditure incurred in connection with a transaction; and (b) the parties to the transaction did not deal with each other at arm's length; and (c) the amount of the expenditure is greater than the * market value of what the expenditure is for; the amount of the expenditure is instead taken to be that market value. This has effect for the purposes of working out what you can deduct under this section. Table of Subdivisions Guide to Division 80 Guide to Division 80 INCOME TAX ASSESSMENT ACT 1997 - SECT 80.1 What this Division is about This Division sets out rules that apply throughout the Part. The rules are about holding an office, the termination of employment, the transfer of property and receiving and making payments. Table of sections Operative provisions 80-5 Holding of an office 80-10 Application to the termination of employment 80-15 Transfer of property 80-20 Payments for your benefit or at your direction or request Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 80.5 Holding of an office If a person holds (or has held) an office, this Part applies to the person in the same way as it would apply if the person were (or had been) employed. INCOME TAX ASSESSMENT ACT 1997 - SECT 80.10 Application to the termination of employment For the purposes of this Part, treat the termination of employment as including: (a) retirement from employment; and (b) the cessation of employment because of death. INCOME TAX ASSESSMENT ACT 1997 - SECT 80.15 Transfer of property (1) Any of the following payments covered by this Part (but no others covered by this Part) can be or include a transfer of property: (a) an * employment termination payment; (b) a * genuine redundancy payment; (c) an * early retirement scheme payment; (d) a payment covered by Subdivision 83-D (Foreign termination payments); (e) a payment that would be an employment termination payment but for paragraph 82-130(1)(b) (see Subdivision 83-E). Note: An unused annual leave payment or an unused long service leave payment cannot include a transfer of property. (2) The amount of the payment is or includes the * market value of the property. (3) The * market value is reduced by the value of any consideration given for the transfer of the property. INCOME TAX ASSESSMENT ACT 1997 - SECT 80.20 Payments for your benefit or at your direction or request (1) This section applies for the purposes of: (a) determining whether Division 82 or 83 applies to a payment; and (b) determining whether a payment mentioned in Division 82 or 83 is made to you, or received by you. (2) A payment is treated as being made to you, or received by you, if it is made: (a) for your benefit; or (b) to another person or to an entity at your direction or request. Table of Subdivisions Guide to Division 82 82-A Employment termination payments: life benefits 82-B Employment termination payments: death benefits 82-C Key concepts Guide to Division 82 INCOME TAX ASSESSMENT ACT 1997 - SECT 82.1 What this Division is about This Division tells you how employment termination payments are treated for the purpose of income tax. Guide to Subdivision 82-A INCOME TAX ASSESSMENT ACT 1997 - SECT 82.5 What this Subdivision is about If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component). You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations. The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination. Table of sections Operative provisions 82-10 Taxation of life benefit termination payments Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 82.10 Taxation of life benefit termination payments Tax free component (1) The * tax free component of a *life benefit termination payment you receive is not assessable income and is not * exempt income. Taxable component (2) The * taxable component of the payment is assessable income. (3) You are entitled to a * tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed: (a) if you are your * preservation age or older on the last day of the income year in which you receive the payment--15%; or (b) otherwise--30%. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (4) The amount is so much of the * taxable component of the payment as does not exceed the lesser of: (a) the * ETP cap amount, reduced (but not below zero) by the amount worked out under this subsection for each * life benefit termination payment you have received earlier in the income year; and (b) the ETP cap amount, reduced (but not below zero) by the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year. Note 1: For the ETP cap amount, see section 82-160. Note 2: If you have also received a death benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the death benefit termination payment (under section 82-65 or 82-70). Note 3: Certain other life benefit termination payments made before 1 July 2012 may be treated as earlier payments under paragraph (4)(b): see section 82-10H of the Income Tax (Transitional Provisions) Act 1997. Guide to Subdivision 82-B INCOME TAX ASSESSMENT ACT 1997 - SECT 82.60 What this Subdivision is about If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component). You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations. The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination. If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person. Table of sections Operative provisions 82-65 Death benefits for dependants 82-70 Death benefits for non-dependants 82-75 Death benefits paid to trustee of deceased estate Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 82.65 Death benefits for dependants Tax free component (1) The * tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a * death benefits dependant is not assessable income and is not * exempt income. Taxable component (2) If you receive a * death benefit termination payment after the death of a person of whom you are a * death benefits dependant: (a) the part of the * taxable component of the payment mentioned in subsection (3) is not assessable income and is not * exempt income; and (b) the remainder of the taxable component (if any) of the payment is assessable income. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (3) The amount is so much of the * taxable component of the payment as does not exceed the * ETP cap amount. Note: For the ETP cap amount, see section 82-160. (4) The * ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each * death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year. Note 1: See subsection 82-75(2) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased. Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax concession under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10). INCOME TAX ASSESSMENT ACT 1997 - SECT 82.70 Death benefits for non-dependants Tax free component (1) The * tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are not a * death benefits dependant is not assessable income and is not * exempt income. Taxable component (2) If you receive a * death benefit termination payment after the death of a person of whom you are not a * death benefits dependant, the * taxable component of the payment is assessable income. (3) You are entitled to a * tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed 30%. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (4) The amount is so much of the * taxable component of the payment as does not exceed the * ETP cap amount. Note: For the ETP cap amount, see section 82-160. (5) The * ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (4) for each * death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year. Note 1: See subsection 82-75(3) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased. Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10). INCOME TAX ASSESSMENT ACT 1997 - SECT 82.75 Death benefits paid to trustee of deceased estate (1) This section applies to you if: (a) you are the trustee of a deceased estate; and (b) a * death benefit termination payment is made to you in your capacity as trustee. Note: See also subsection 101A(3) of the Income Tax Assessment Act 1936. Dependants of deceased benefit from payment (2) To the extent that 1 or more beneficiaries of the estate who were * death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment: (a) the payment is treated as if it had been made to you as a person who was a death benefits dependant of the deceased; and (b) the payment is taken to be income to which no beneficiary is presently entitled. Note: Section 82-65 deals with the taxation of employment termination payments made to persons who are death benefits dependants of deceased persons. Non-dependants of deceased benefit from payment (3) To the extent that 1 or more beneficiaries of the estate who were not * death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment: (a) the payment is treated as if it had been made to you as a person who was not a death benefits dependant of the deceased; and (b) the payment is taken to be income to which no beneficiary is presently entitled. Note: Section 82-70 deals with the taxation of employment termination payments made to persons who are not death benefits dependants of deceased persons. Guide to Subdivision 82-C INCOME TAX ASSESSMENT ACT 1997 - SECT 82.125 What this Subdivision is about This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person's employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances). An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated). Certain types of payments are declared not to be employment termination payments. Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision. Table of sections Operative provisions 82-130 What is an employment termination payment ? 82-135 Payments that are not employment termination payments 82-140 Tax free component of an employment termination payment 82-145 Taxable component of an employment termination payment 82-150 What is an invalidity segment of an employment termination payment? 82-155 What is a pre-July 83 segment of an employment termination payment? 82-160 What is the ETP cap amount ? Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 82.130 What is an employment termination payment? (1) A payment is an employment termination payment if: (a) it is received by you: (i) in consequence of the termination of your employment; or (ii) after another person's death, in consequence of the termination of the other person's employment; and (b) it is received no later than 12 months after that termination (but see subsection (4)); and (c) it is not a payment mentioned in section 82-135. Note 1: If a payment would be an employment termination payment but for paragraph (b), see subsection (4) and section 83-295. Note 2: The holding of an office is treated as employment for this Part: see section 80-5. Also, the termination of employment is treated as including the termination of employment by retirement or by death: see section 80-10. Types of employment termination payment (2) A life benefit termination payment is an * employment termination payment to which subparagraph (1)(a)(i) applies. (3) A death benefit termination payment is an * employment termination payment to which subparagraph (1)(a)(ii) applies. Exemption from 12 month rule (4) Paragraph (1)(b) does not apply to you if: (a) you are covered by a determination under subsection (5) or (7); or (b) the payment is a * genuine redundancy payment or an * early retirement scheme payment. Note: The part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment: see section 82-135. (5) The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following: (a) the circumstances of the employment termination, including any dispute in relation to the termination; (b) the circumstances of the payment; (c) the circumstances of the person making the payment; (d) any other relevant circumstances. (6) A determination under subsection (5) is not a legislative instrument. (7) The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination: (a) a class of payments; (b) a class of recipients of payments. (8) A determination under subsection (7) may provide for paragraph (1)(b) not to apply in circumstances relating to any (or all) of the following, as specified in the determination: (a) a class of employment termination (including a class described by reference to disputes of a specified type); (b) a class of payments; (c) a class of persons making payments; (d) the period after the employment termination until payment is received; (e) any other relevant circumstances. INCOME TAX ASSESSMENT ACT 1997 - SECT 82.135 Payments that are not employment termination payments The following payments you receive are not employment termination payments: (a) a * superannuation benefit (see Divisions 301 to 307); (b) a payment of a pension or an * annuity (whether or not the payment is a superannuation benefit); and (c) an * unused annual leave payment (see Subdivision 83-A); (d) an * unused long service leave payment (see Subdivision 83-B); (e) the part of a * genuine redundancy payment or an * early retirement scheme payment worked out under section 83-170 (see Subdivision 83-C); (f) a payment to which Subdivision 83-D (Foreign termination payments) applies; (fa) a payment (or part of one) made by a company or trust as mentioned in subsection 152-310(2); (g) a payment that is an advance or a loan to you on terms and conditions that would apply if you and the payer were dealing at * arm's length; (h) a payment that is deemed to be a * dividend under this Act; (i) a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to * derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936); (j) a capital payment for, or in respect of, a legally enforceable contract in restraint of trade by you so far as the payment is reasonable having regard to the nature and extent of the restraint; (k) a payment: (i) received by you, or to which you are entitled, as the result of the commutation of a pension payable from a * constitutionally protected fund; and (ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 37 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997); (l) a payment: (i) received by you, or to which you are entitled, as the result of the commutation of a pension payable by a superannuation provider (within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997); and (ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 43 of that Act); (m) an amount included in your assessable income under Division 83A of this Act (which deals with employee share schemes). Note: For paragraph (e)--the remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in the paragraph) is an employment termination payment if section 82-130 applies to that part. INCOME TAX ASSESSMENT ACT 1997 - SECT 82.140 Tax free component of an employment termination payment The tax free component of an * employment termination payment is so much of the payment as consists of the following: (a) the * invalidity segment of the payment; (b) the * pre-July 83 segment of the payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 82.145 Taxable component of an employment termination payment The taxable component of an * employment termination payment is the amount of the payment less the * tax free component of the payment (see section 82-140). INCOME TAX ASSESSMENT ACT 1997 - SECT 82.150 What is an invalidity segment of an employment termination payment? (1) An * employment termination payment includes an invalidity segment if: (a) the payment was made to a person because he or she stops being * gainfully employed; and (b) the person stopped being gainfully employed because he or she suffered from ill-health (whether physical or mental); and (c) the gainful employment stopped before the person's * last retirement day; and (d) 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training. (2) Work out the amount of the invalidity segment by applying the following formula: where: "days to retirement" is the number of days from the day on which the person's employment was terminated to the * last retirement day. "employment days" is the number of days of employment to which the payment relates. INCOME TAX ASSESSMENT ACT 1997 - SECT 82.155 What is a pre-July 83 segment of an employment termination payment? (1) An * employment termination payment includes a pre-July 83 segment if any of the employment to which the payment relates occurred before 1 July 1983. (2) Work out the amount of the pre-July 83 segment as follows: Step 1. Subtract the * invalidity segment (if any) from the * employment termination payment. Step 2. Multiply the amount at step 1 by the fraction: INCOME TAX ASSESSMENT ACT 1997 - SECT 82.160 What is the ETP cap amount? The ETP cap amount for the 2007-2008 income year is $140,000. This amount is indexed annually. Note 1: Subdivision 960-M shows how to index amounts. However, annual indexation does not necessarily increase the ETP cap amount: see section 960-285. Note 2: The ETP cap amount may be reduced for the purpose of working out tax offsets for individual employment termination payments. Table of Subdivisions Guide to Division 83 83-A Unused annual leave payments 83-B Unused long service leave payments 83-C Genuine redundancy payments and early retirement scheme payments 83-D Foreign termination payments 83-E Other payments Guide to Division 83 INCOME TAX ASSESSMENT ACT 1997 - SECT 83.1 What this Division is about This Division sets out the taxation treatment for a variety of payments, other than employment termination payments, that are made in consequence of the termination of employment. Guide to Subdivision 83-A INCOME TAX ASSESSMENT ACT 1997 - SECT 83.5 What this Subdivision is about You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused annual leave. Table of sections Operative provisions 83-10 Unused annual leave payment is assessable 83-15 Entitlement to tax offset Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83.10 Unused annual leave payment is assessable Application--annual leave (1) This section applies to leave (annual leave) of the following types (whether it is made available as an entitlement or as a privilege): (a) leave ordinarily known as annual leave, including recreational leave and annual holidays; (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available. Unused annual leave payments (2) Your assessable income includes an * unused annual leave payment that you receive. (3) A payment that you receive in consequence of the termination of your employment is an unused annual leave payment if: (a) it is for annual leave you have not used; or (b) it is a bonus or other additional payment for annual leave you have not used; or (c) it is for annual leave, or is a bonus or other additional payment for annual leave, to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.15 Entitlement to tax offset You are entitled to a * tax offset to ensure that the rate of tax on an * unused annual leave payment does not exceed 30%, to the extent that: (a) the payment was made in connection with a payment that includes, or consists of, any of the following: (i) a * genuine redundancy payment; (ii) an * early retirement scheme payment; (iii) the * invalidity segment of an * employment termination payment or * superannuation benefit; or (b) the payment was made in respect of employment before 18 August 1993. Guide to Subdivision 83-B INCOME TAX ASSESSMENT ACT 1997 - SECT 83.65 What this Subdivision is about You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused long service leave. Table of sections General 83-70 Application--long service leave 83-75 Meaning of unused long service leave payment 83-80 Taxation of unused long service leave payments 83-85 Entitlement to tax offset 83-90 Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period Employment wholly full-time or wholly part-time 83-95 How to work out amount of payment attributable to each period 83-100 How to work out unused days of long service leave for each period 83-105 How to work out long service leave accrued in each period Employment partly full-time and partly part-time 83-110 Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods--employment full-time and part-time Long service leave taken at less than full pay 83-115 Working out used days of long service leave if leave taken at less than full pay General INCOME TAX ASSESSMENT ACT 1997 - SECT 83.70 Application--long service leave This Subdivision applies to leave (long service leave) of the following types (whether it is made available as an entitlement or as a privilege), other than annual leave to which section 83-10 applies: (a) leave ordinarily known as long service leave, including long leave, furlough and extended leave; (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available; (c) if your employer has entered into a * scheme or *arrangement for leave and, because of the existence and nature of the scheme or arrangement, the employer does not have to comply with the requirements of a law of the Commonwealth, or of a State or Territory, relating to leave mentioned in paragraph (a) or (b)--leave made available under the scheme or arrangement. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.75 Meaning of unused long service leave payment A payment that you receive in consequence of the termination of your employment is an unused long service leave payment if: (a) it is for long service leave you have not used; or (b) it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.80 Taxation of unused long service leave payments Assessable and tax-free parts of unused long service leave payments (1) If you receive an * unused long service leave payment, your assessable income includes the part of the payment shown in this table: * Unused long service leave payments Item To the extent the payment is attributable to the ... Your assessable income includes this part of it ... 1 * pre-16/8/78 period 5% 2 * pre-18/8/93 period 100% 3 * post-17/8/93 period 100% (2) The remainder of that part (if any) of an * unused long service leave payment that is attributable to the * pre-16/8/78 period is not assessable income and is not * exempt income. Note 1: If your employment was wholly full-time or wholly part-time during a period, see sections 83-95, 83-100 and 83-105 to work out the amount of an unused long service leave payment that is attributable to the period. Note 2: If your employment was partly full-time and partly part-time during a period, see section 83-110 to work out the amount of an unused long service leave payment that is attributable to the period. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.85 Entitlement to tax offset (1) You are entitled to a * tax offset on an *unused long service leave payment that ensures that the rate of income tax on the amount of the payment mentioned in subsection (2) does not exceed 30%. (2) The amount is the part of the * unused long service leave payment included in your assessable income under subsection 83-80(1): (a) to the extent that it is attributable to the * pre-18/8/93 period; and (b) to the extent that it is attributable to the * post-17/8/93 period, if the payment was made in connection with a payment that includes, or consists of, any of the following: (i) a * genuine redundancy payment; or (ii) an * early retirement scheme payment; or (iii) an * invalidity segment of an * employment termination payment or a * superannuation benefit. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.90 Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period (1) The pre-16/8/78 period consists of each day (if any) in your * long service leave employment period that occurred before 16 August 1978. (2) The pre-18/8/93 period consists of each day (if any) in your * long service leave employment period to which the payment relates that occurred after 15 August 1978 and before 18 August 1993. (3) The post-17/8/93 period consists of each day (if any) in your * long service leave employment period to which the payment relates that occurred after 17 August 1993. (4) Your long service leave employment period, for a period of long service leave, is: (a) the period of employment to which the long service leave relates; or (b) if your entitlement to long service leave changes so that it accrues over a shorter period--the period that would apply under paragraph (a) assuming the change had not happened. Employment wholly full-time or wholly part-time INCOME TAX ASSESSMENT ACT 1997 - SECT 83.95 How to work out amount of payment attributable to each period (1) Work out how much of an * unused long service leave payment is attributable to a period as follows: (a) for the * pre-18/8/93 period or to the *post-17/8/93 period--use the formula in subsection (2); (b) for the * pre-16/8/78 period--subtract the sum of the amounts (if any) worked out for paragraph (a) for the other 2 periods from the total amount of the payment. (2) For the * pre-18/8/93 period or the *post-17/8/93 period, the formula is: where: total unused long service leave days means the total number of unused days of long service leave in the *long service leave employment period for the payment.unused long service leave days in the relevant period means the number of unused days of long service leave in the *pre-18/8/93 period or the *post-17/8/93 period (as applicable), worked out under section 83-100.Note 1: For the meaning of unused days of long service leave, see section 83-100. Note 2: Section 83-110 explains how to work out the period of unused long service leave if your employment was partly full-time and partly part-time during the period. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.100 How to work out unused days of long service leave for each period (1) The number of unused days of long service leave for each of the * pre-16/8/78 period, the * pre-18/8/93 period and the * post-17/8/93 period is the number of days of long service leave that accrued to you during that period less the number of days of long service leave that you used in the period. Exception if days used exceed days accrued in the pre-18/8/93 period and the post-17/8/93 period (2) To the extent that the number of days of long service leave that you used during the * pre-18/8/93 period or the *post-17/8/93 period exceeds the number of days of long service leave that accrued to you during the period, apply the excess days as shown in this table: How to apply excess days Item If there are excess days in this period: Apply the excess days as follows: If, after you apply the excess days as shown in column 2, excess days remain, apply the remaining days as follows: 1 * pre-18/8/93 period Subtract the excess days from the unused days in the * post-17/8/93 period Subtract the excess days from the unused days in the * pre-16/8/78 period 2 * post-17/8/93 period Subtract the excess days from the unused days in the * pre-18/8/93 period Subtract the excess days from the unused days in the * pre-16/8/78 period (3) The number of unused days of long service leave in each period is the number of days after applying the table. Note: Section 83-115 explains how to work out the number of days of long service leave you are taken to have used if you took long service leave at less than the full pay rate. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.105 How to work out long service leave accrued in each period (1) Work out the number of days of long service leave that accrued to you during each part of your * long service leave employment period as follows: (a) for the * pre-18/8/93 period or the *post-17/8/93 period--use the formula in subsection (2); (b) for the * pre-16/8/78 period--subtract the sum of the number of days (if any) worked out under paragraph (a) for the other 2 periods from the total number of days of long service leave accrued to you during the long service leave employment period. (2) For the * pre-18/8/93 period or the *post-17/8/93 period, the formula is: where: relevant period means the *pre-18/8/93 period or the *post 17/8/93 period (as applicable).How to treat fraction of day (3) If long service leave accrued to you during the * pre-18/8/93 period and the * post-17/8/93 period but not during the * pre-16/8/78 period, and the number of days worked out under subsection (2) for the post-17/8/93 period includes a fraction, treat the fraction as having accrued during the pre-18/8/93 period. (4) If long service leave accrued to you during all 3 periods and the number of days worked out under subsection (2) for the * post-17/8/93 period or the * pre-18/8/93 period includes a fraction, treat the fraction as having accrued during the * pre-16/8/78 period. Employment partly full-time and partly part-time INCOME TAX ASSESSMENT ACT 1997 - SECT 83.110 Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods--employment full-time and part-time (1) This section applies if the * long service leave employment period for an * unused long service leave payment includes: (a) 1 or more periods when you were employed on a full-time basis; and (b) 1 or more periods when you were employed on a part-time basis. (2) Work out how much of the payment is attributable to the period or periods when you were employed on a full-time basis (the full-time payment) and how much to the period or periods when you were employed on a part-time basis (the part-time payment ). (3) The amount of the payment that is attributable to each of the * pre-16/8/78 period, the *pre-18/8/93 period and the *post-17/8/93 period is the sum of the amounts worked out in accordance with sections 83-95, 83-100 and 83-105 that would be attributable to those periods if the full-time payment and the part-time payment were each * unused long service leave payments. Long service leave taken at less than full pay INCOME TAX ASSESSMENT ACT 1997 - SECT 83.115 Working out used days of long service leave if leave taken at less than full pay If you used days of long service leave at a rate of pay that is less than the rate to which you are entitled, the number of days of long service leave you are taken to have used (disregarding fractions of days) is as follows: Example: If you took 100 actual days of long service leave at a rate of pay of $30 per hour, while the rate of pay to which you were entitled when taking leave is $40 per hour, you are taken to have used 75 days of long service leave, worked out as follows: Guide to Subdivision 83-C INCOME TAX ASSESSMENT ACT 1997 - SECT 83.165 What this Subdivision is about This Subdivision defines what are genuine redundancy payments and early retirement scheme payments. If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision. A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment. Table of sections Operative provisions 83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments 83-175 What is a genuine redundancy payment ? 83-180 What is an early retirement scheme payment ? Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83.170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments (1) This section applies if you receive a * genuine redundancy payment or an * early retirement scheme payment. Note: A payment cannot be both a genuine redundancy payment and an early retirement scheme payment, because of the nature of each of these types of payment: see sections 83-175 and 83-180. (2) So much of the relevant payment as does not exceed the amount worked out under subsection (3) is not assessable income and is not * exempt income. (3) Work out the amount using the formula: where: "base amount" means: (a) for the income year 2006-2007--$6,783; and (b) for a later income year--the amount mentioned in paragraph (a) indexed annually. Note: Subdivision 960-M shows you how to index the base amount. "service amount" means: (a) for the income year 2006-2007--$3,392; and (b) for a later income year--the amount mentioned in paragraph (a) indexed annually. Note: Subdivision 960-M shows you how to index the service amount. "years of service" means the number of whole years in the period, or sum of periods, of employment to which the payment relates.Note: The remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in subsection (3)) is an employment termination payment if section 82-130 applies to that part. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.175 What is a genuine redundancy payment? (1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee's position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal. (2) A genuine redundancy payment must satisfy the following conditions: (a) the employee is dismissed before the earlier of the following: (i) the day he or she turned 65; (ii) if the employee's employment would have terminated when he or she reached a particular age or completed a particular period of service--the day he or she would reach the age or complete the period of service (as the case may be); (b) if the dismissal was not at * arm's length--the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm's length; (c) at the time of the dismissal, there was no * arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal. (3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of * superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time. Payments not covered (4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)). Note: Paragraph 82-135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.180 What is an early retirement scheme payment? (1) An early retirement scheme payment is so much of a payment received by an employee because the employee retires under an * early retirement scheme as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement. (2) An early retirement scheme payment must satisfy the following conditions: (a) the employee retires before the earlier of the following: (i) the day he or she turned 65; (ii) if the employee's employment would have terminated when he or she reached a particular age or completed a particular period of service--the day he or she would reach the age or complete the period of service (as the case may be); (b) if the retirement is not at * arm's length--the payment does not exceed the amount that could reasonably be expected to be made if the retirement were at arm's length; (c) at the time of the retirement, there was no * arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement. (3) A scheme is an early retirement scheme if: (a) all the employer's employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and (b) the employer's purpose in implementing the scheme is to rationalise or re-organise the employer's operations by making any change to the employer's operations, or the nature of the work force, that the Commissioner approves; and (c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section. (4) A scheme is also an early retirement scheme if: (a) paragraph (3)(a) or (b) does not apply; and (b) the Commissioner is satisfied that special circumstances exist in relation to the scheme that make it reasonable to approve the scheme; and (c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section. (5) However, an early retirement scheme payment does not include any part of the payment that was paid to the employee in lieu of * superannuation benefits to which the employee may have become entitled at the time the payment was made or at a later time. Payments not covered (6) A payment is not an early retirement scheme payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)). Note: Paragraph 82-135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment. Guide to Subdivision 83-D INCOME TAX ASSESSMENT ACT 1997 - SECT 83.230 What this Subdivision is about This Subdivision deals with termination payments that arise out of foreign employment. These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision). Table of sections Operative provisions 83-235 Termination payments tax free--foreign resident period 83-240 Termination payments tax free--Australian resident period Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83.235 Termination payments tax free--foreign resident period A payment received by you is not assessable income and is not * exempt income if: (a) it was received in consequence of the termination of your employment in a foreign country; and (b) it is not a * superannuation benefit; and (c) it is not a payment of a pension or an * annuity (whether or not the payment is a superannuation benefit); and (d) it relates only to a period of employment when you were not an Australian resident. INCOME TAX ASSESSMENT ACT 1997 - SECT 83.240 Termination payments tax free--Australian resident period (1) A payment received by you is not assessable income and is not * exempt income if: (a) it was received in consequence of: (i) the termination of your employment in a foreign country; or (ii) the termination of your engagement on qualifying service on an approved project (within the meaning of section 23AF of the Income Tax Assessment Act 1936), in relation to a foreign country; and (b) it relates only to the period of that employment or engagement; and (c) it is not a * superannuation benefit; and (d) it is not a payment of a pension or an * annuity (whether or not the payment is a superannuation benefit); and (e) you were an Australian resident during the period of the employment or engagement; and (f) the payment is not exempt from income tax under the law of the foreign country; and (g) for a period of employment--your foreign earnings from the employment are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936; and (h) for a period of engagement--your * eligible foreign remuneration from the service is exempt from income tax under section 23AF of that Act. (2) For the purposes of subparagraph (1)(a)(ii), treat the termination of engagement on qualifying service on an approved project as including: (a) retirement from the engagement; and (b) cessation of the engagement because of the person's death. Note: The termination of a person's employment is treated in the same way: see section 80-10. Guide to Subdivision 83-E INCOME TAX ASSESSMENT ACT 1997 - SECT 83.290 What this Subdivision is about If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82-130). The payment is treated as assessable income and no tax concession is allowed under Division 82. Table of sections Operative provisions 83-295 Termination payments made more than 12 months after termination etc. Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83.295 Termination payments made more than 12 months after termination etc. A payment received by you that would be an * employment termination payment but for paragraph 82-130(1)(b) is assessable income. Table of Subdivisions Guide to Division 83A 83A-A Objects of Division and key concepts 83A-B Immediate inclusion of discount in assessable income 83A-C Deferred inclusion of gain in assessable income 83A-D Deduction for employer 83A-E Miscellaneous Guide to Division 83A INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.1 What this Division is about Your assessable income includes discounts on shares, rights and stapled securities you (or your associate) acquire under an employee share scheme. You may be entitled: (a) to have the amount included in your assessable income reduced; or (b) to have the income year in which it is included deferred. Table of sections 83A-5 Objects of Division 83A-10 Meaning of ESS interest and employee share scheme INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.5 Objects of Division The objects of this Division are: (a) to ensure that benefits provided to employees under * employee share schemes are subject to income tax at the employees' marginal rates under * income tax law (instead of being subject to * fringe benefits tax law); and (b) to increase the extent to which the interests of employees are aligned with those of their employers, by providing a tax concession to encourage lower and middle income earners to acquire * shares under such schemes. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.10 Meaning of ESS interest and employee share scheme (1) An ESS interest, in a company, is a beneficial interest in: (a) a * share in the company; or (b) a right to acquire a beneficial interest in a share in the company. (2) An employee share scheme is a * scheme under which * ESS interests in a company are provided to employees, or * associates of employees, (including past or prospective employees) of: (a) the company; or (b) * subsidiaries of the company; in relation to the employees' employment. Note: See section 83A-325 for relationships similar to employment. Guide to Subdivision 83A-B INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.15 What this Subdivision is about Generally, a discount you receive on shares, rights or stapled securities you acquire under an employee share scheme is included in your assessable income when you acquire the beneficial interest in those shares, rights or securities. You may be entitled to reduce the amount included in your assessable income if you meet certain conditions which seek to limit the concession to genuine schemes broadly available to all permanent employees who do not already have anything other than a minor interest in their employer. The income year in which you are taxed may be deferred if there is a real risk of forfeiture, or you acquired the shares or securities under particular salary sacrifice arrangements (see Subdivision 83A-C). If you are a foreign resident, only the part of the discount that relates to your employment in Australia is included in your assessable income. Table of sections Operative provisions 83A-20 Application of Subdivision 83A-25 Discount to be included in assessable income 83A-30 Amount for which discounted ESS interest acquired 83A-35 Reduction of amounts included in assessable income Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.20 Application of Subdivision (1) This Subdivision applies to an * ESS interest if you acquire the interest under an * employee share scheme at a discount. Note 1: This Subdivision does not apply if Subdivision 83A-C applies: see section 83A-105. Note 2: If an associate of yours acquires an interest in relation to your employment, this Division applies as if you, rather than your associate, acquired the interest: see section 83A-305. Note 3: Regulations made for the purposes of section 83A-315 may be relevant to working out whether you acquire the ESS interest at a discount. (2) However, this Subdivision does not apply if the * ESS interest is a beneficial interest in a * share that you acquire as a result of exercising a right, if you acquired a beneficial interest in the right under an * employee share scheme. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.25 Discount to be included in assessable income (1) Your assessable income for the income year in which you acquire the * ESS interest includes the discount given in relation to the interest. (2) Treat an amount included in your assessable income under subsection (1) as being from a source other than an * Australian source to the extent that it relates to your employment outside Australia. Note: For the CGT treatment of employee share schemes, see Subdivision 130-D. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.30 Amount for which discounted ESS interest acquired For the purposes of this Act (other than this Division), the * ESS interest (and the * share or right of which it forms part) is taken to have been acquired for its * market value (rather than for its discounted value). Note: Regulations made for the purposes of section 83A-315 may substitute a different amount for the market value of the ESS interest. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.35 Reduction of amounts included in assessable income Reduction and income test (1) Reduce the total amount included in your assessable income under subsection 83A-25(1) for an income year by the total of the amounts included in your assessable income under that subsection, for the income year, for * ESS interests to which subsections (3) to (9) of this section apply. (2) However: (a) do not reduce the total amount by more than $1,000; and (b) only make the reduction if the sum of the following does not exceed $180,000: (i) your taxable income for the income year (including any amount that would be included in your taxable income if you disregarded this section); (ii) your * reportable fringe benefits total for the income year; (iii) your * reportable superannuation contributions (if any) for the income year; (iv) your * total net investment loss for the income year. Employment (3) This subsection applies to an * ESS interest in a company if, when you acquire the interest, you are employed by: (a) the company; or (b) a * subsidiary of the company. Employee share scheme relates only to ordinary shares (4) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, when you acquire the interest, all the ESS interests available for acquisition under the scheme relate to ordinary * shares. Integrity rule about share trading and investment companies. (5) This subsection applies to an * ESS interest in a company unless, when you acquire the interest: (a) the predominant business of the company (whether or not stated in its constituent documents) is the acquisition, sale or holding of * shares, securities or other investments (whether directly or indirectly through one or more companies, partnerships or trusts); and (b) you are employed by the company; and (c) you are also employed by any other company that is: (i) a * subsidiary of the first company; or (ii) a holding company (within the meaning of the Corporations Act 2001) of the first company; or (iii) a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the first company. Scheme must be non-discriminatory (6) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, when you acquire the interest, both: (a) the employee share scheme; and (b) any scheme for the provision of financial assistance in respect of acquisitions of ESS interests under the employee share scheme; are operated on a non-discriminatory basis in relation to at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or non-continuous) with your employer and who are Australian residents. No risk of losing interest or share under the conditions of the scheme (7) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, when you acquire the interest: (a) if the ESS interest is a beneficial interest in a * share--there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or (b) if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a * share: (i) there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and (ii) there is no real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it). Minimum holding period (8) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, at all times during the period that: (a) starts when you acquire the interest; and (b) ends at the earlier of: (i) 3 years later; and (ii) when you cease being employed by your employer; the scheme is operated so that: (c) you are not permitted to dispose of: (i) any ESS interest (the scheme interest) you acquire under the scheme; or (ii) a beneficial interest in a * share you acquire as a result of a scheme interest; before the earlier of: (iii) the end of the period of 3 years after you acquire the scheme interest; and (iv) when you cease being employed by your employer; and (d) everyone else who acquires ESS interests under the scheme is subject to a corresponding restriction. Note: This subsection is taken to apply in the case of a takeover or restructure: see subsection 83A-130(3). 5% limit on shareholding and voting power (9) This subsection applies to an * ESS interest in a company if, immediately after you acquire the interest: (a) you do not hold a beneficial interest in more than 5% of the * shares in the company; and (b) you are not in a position to cast, or to control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of the company. Guide to Subdivision 83A-C INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.100 What this Subdivision is about If there is a real risk you might forfeit the share, right or stapled security you acquired under an employee share scheme, you don't include the discount in your assessable income when you acquired it. Instead, in the first income year you are able to dispose of the share, right or security, your assessable income will include any gain you have made to that time. If you cease employment earlier, or if 7 years pass, the gain is included in that income year instead. A share or stapled security you acquire under salary sacrifice arrangements can also be subject to this deferred taxing point if you get no more than $5,000 worth of shares under those arrangements. Table of sections Main provisions 83A-105 Application of Subdivision 83A-110 Amount to be included in assessable income 83A-115 ESS deferred taxing point--shares 83A-120 ESS deferred taxing point--rights to acquire shares 83A-125 Tax treatment of ESS interests held after ESS deferred taxing points Takeovers and restructures 83A-130 Takeovers and restructures Main provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.105 Application of Subdivision Scope of Subdivision (1) This Subdivision applies, and Subdivision 83A-B does not apply, to an * ESS interest in a company if: (a) Subdivision 83A-B would, apart from this section, apply to the interest (see section 83A-20); and (b) subsections 83A-35(3), (4), (5) and (9) apply to the interest; and (c) if the interest is a beneficial interest in a * share: (i) subsection (2) of this section applies to the interest; and (ii) subsection (3) or (4) applies to the interest; and (d) if the interest is a beneficial interest in a right to acquire a beneficial interest in a share--subsection (3) applies to the interest. Note: Subsections 83A-35(3), (4), (5), and (9) contain conditions relating to the following: (a) your employment; (b) the types of shares available under the employee share scheme; (c) share trading and investment companies; (d) your shareholding and voting power in the company. Broad availability of schemes (2) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, when you acquire the interest, at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or non-continuous) with your employer and who are Australian residents are, or at some earlier time had been, entitled to acquire: (a) ESS interests under the scheme; or (b) ESS interests in: (i) your employer; or (ii) a holding company (within the meaning of the Corporations Act 2001) of your employer; under another employee share scheme. Real risk of losing interest or share under the conditions of the scheme (3) This subsection applies to an * ESS interest you acquire under an * employee share scheme if, when you acquire the interest: (a) if the ESS interest is a beneficial interest in a * share--there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or (b) if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share: (i) there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); or (ii) there is a real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it). Salary sacrifice arrangement (4) This subsection applies to an * ESS interest you acquire under an * employee share scheme during an income year at a discount if: (a) the interest is provided: (i) because you agreed to acquire the interest in return for a reduction in your salary or wages that would not have happened apart from the agreement; or (ii) as part of your remuneration package, in circumstances where it is reasonable to conclude that your salary or wages would be greater if the interest was not made part of that package; and (b) at the time you acquire the interest: (i) the discount equals the * market value of the ESS interest; and (ii) all of the ESS interests available for acquisition under the scheme are ESS interests to which subsection (3) applies, beneficial interests in * shares, or both; and (iii) the governing rules of the scheme expressly state that this Subdivision applies to the scheme (subject to the requirements of this Act); and (c) the total * market value of the *ESS interests in your employer and any holding company (within the meaning of the Corporations Act 2001) of your employer: (i) that you acquire during the year under any employee share scheme or schemes; and (ii) to which both this Subdivision and this subsection apply; does not exceed $5,000. (5) For the purposes of paragraph (4)(c), work out the * market value of each *ESS interest as at the time you acquire it. Note: Regulations made for the purposes of section 83A-315 may substitute a different amount for the market value of the ESS interest. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.110 Amount to be included in assessable income (1) Your assessable income for the income year in which the * ESS deferred taxing point for the * ESS interest occurs includes the *market value of the interest at the ESS deferred taxing point, reduced by the * cost base of the interest. Note: Regulations made for the purposes of section 83A-315 may substitute a different amount for the market value of the ESS interest. (2) Treat an amount included in your assessable income under subsection (1) as being from a source other than an * Australian source to the extent that it relates to your employment outside Australia. Note: For the CGT treatment of employee share schemes, see Subdivision 130-D. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.115 ESS deferred taxing point--shares Scope (1) This section applies if the * ESS interest is a beneficial interest in a * share. Meaning of ESS deferred taxing point (2) The ESS deferred taxing point for the * ESS interest is the earliest of the times mentioned in subsections (4) to (6). (3) However, the ESS deferred taxing point for the * ESS interest is instead the time you dispose of the interest, if that time occurs within 30 days after the time worked out under subsection (2). No restrictions on disposing of share (4) The first possible taxing point is the earliest time when: (a) there is no real risk that, under the conditions of the * employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it); and (b) if, at the time you acquired the interest, the scheme genuinely restricted you immediately disposing of the interest--the scheme no longer so restricts you. Cessation of employment (5) The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends. Maximum time period for deferral (6) The 3rd possible taxing point is the end of the 7 year period starting when you acquired the interest. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.120 ESS deferred taxing point--rights to acquire shares Scope (1) This section applies if the * ESS interest is a beneficial interest in a right to acquire a beneficial interest in a * share. Meaning of ESS deferred taxing point (2) The ESS deferred taxing point for the * ESS interest is the earliest of the times mentioned in subsections (4) to (7). (3) However, the ESS deferred taxing point for the * ESS interest is: (a) the time you dispose of the ESS interest (other than by exercising the right); or (b) if you exercise the right--the time you dispose of the beneficial interest in the * share; if that time occurs within 30 days after the time worked out under subsection (2). No restrictions on disposing of right (4) The first possible taxing point is the earliest time when: (a) you have not exercised the right; and (b) there is no real risk that, under the conditions of the * employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and (c) if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the ESS interest--the scheme no longer so restricts you. Cessation of employment (5) The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends. Maximum time period for deferral (6) The 3rd possible taxing point is the end of the 7 year period starting when you acquired the interest. No restrictions on exercising right and disposing of share (7) The 4th possible taxing point is the earliest time when: (a) there is no real risk that, under the conditions of the scheme, you will forfeit or lose the * ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and (b) if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately exercising the right--the scheme no longer so restricts you; and (c) there is no real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the * share (other than by disposing of it); and (d) if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the beneficial interest in the share if you exercised the right--the scheme no longer so restricts you. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.125 Tax treatment of ESS interests held after ESS deferred taxing points For the purposes of this Act (other than this Division), the * ESS interest (and the * share or right of which it forms part) is taken to have been acquired immediately after the * ESS deferred taxing point for the interest for its * market value, unless the ESS deferred taxing point occurs at the time the interest is disposed of. Note: Regulations made for the purposes of section 83A-315 may substitute a different amount for the market value of the ESS interest. Takeovers and restructures INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.130 Takeovers and restructures Object and scope (1) The object of this section is to allow this Division to continue to apply if: (a) at least one of the following applies: (i) an * arrangement (the takeover) is entered into that is intended to result in a company (the old company) becoming a * 100% subsidiary of another company; (ii) * ESS interests in a company (the old company) acquired under * employee share schemes can reasonably be regarded as having been replaced, wholly or partly, by ESS interests in one or more other companies as a result of a change (the restructure) in the ownership (including the structure of the ownership) of the old company; and (b) just before the takeover or restructure, you held ESS interests (the old interests) in the old company that you acquired under an employee share scheme. Treat new interests as continuations of old interests (2) For the purposes of this Division, treat any * ESS interests (the new interests) in a company (the new company) that you acquire in connection with the takeover or restructure as a continuation of the old interests, to the extent that: (a) as a result of the arrangement or change, you stop holding the old interests; and (b) the new interests can reasonably be regarded as matching any of the old interests. Note: In determining to what extent something can reasonably be regarded as matching any of the old interests, one of the factors to consider is the respective market values of that thing and of the old interests. (3) Subsection 83A-35(8) (about the 3 year rule) is taken to apply to the * ESS interests. (4) Subsections (2) and (3) only apply if the new interests relate to ordinary * shares. Old interest not matched by new interests (5) For the purposes of this Division, treat yourself as having disposed of the old interests to the extent that, in connection with the takeover or restructure, you acquire anything that: (a) can reasonably be regarded as matching any of the old interests; but (b) is not treated by subsection (2) as a continuation of those interests. Continuation of your employment (6) For the purposes of this Division, treat your employment by: (a) the new company; or (b) a * subsidiary of the new company; or (c) a holding company (within the meaning of the Corporations Act 2001) of the new company; or (d) a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the new company; as a continuation of the employment in respect of which you acquired the old interests. Apportionment of cost base of old interests (7) Treat yourself as having given, as consideration for the assets mentioned in subsection (8), the amount worked out by apportioning among those assets, according to their respective * market values immediately after the takeover or restructure, the total of: (a) the * cost bases of the old interests when you stop holding them; and (b) the cost bases of the assets mentioned in paragraph (8)(b) immediately after the takeover or restructure (ignoring the effect of this subsection). (8) The assets are: (a) the things that: (i) you acquired in connection with the takeover or restructure; and (ii) can reasonably be regarded as matching the old interests; (including all of the new interests); and (b) in a case covered by subparagraph (1)(a)(ii)--any * ESS interests in the old company that: (i) you held just before, and continue to hold just after, the restructure; and (ii) that can reasonably be regarded as matching the old interests. Exceptions (9) This section only applies if: (a) at or about the time you acquire the new interests, you are employed as mentioned in subsection (6); and (b) at the time you acquire the new interests: (i) you do not hold a beneficial interest in more than 5% of the * shares in the new company; and (ii) you are not in a position to cast, or to control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of the new company. Guide to Subdivision 83A-D INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.200 What this Subdivision is about You can deduct an amount for shares, rights or stapled securities you provide to your employees under an employee share scheme if they are eligible for a reduction in their assessable income under section 83A-35. The amount you can deduct is equal to that reduction. You must defer any deduction you are entitled to for amounts you provide to finance your employees acquiring interests in shares, rights or stapled securities under an employee share scheme until the employees have actually acquired those interests. Table of sections Operative provisions 83A-205 Deduction for employer 83A-210 Timing of general deductions Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.205 Deduction for employer (1) You can deduct an amount for an income year if: (a) during the year you provided one or more * ESS interests to an individual under an * employee share scheme; and (b) you did so as: (i) the employer of the individual; or (ii) a holding company (within the meaning of the Corporations Act 2001) of the employer of the individual; and (c) section 83A-35 applies to reduce the amount included in the individual's assessable income under subsection 83A-25(1) in relation to some or all of the interests. (2) Disregard paragraph 83A-35(2)(b) (income test) for the purposes of paragraph (1)(c) of this section. (3) The amount of the deduction is the amount of the reduction mentioned in paragraph (1)(c). Deduction to be apportioned if interest provided by multiple entities (4) The amount of the deduction worked out under subsection (3) must be apportioned between 2 or more entities on a reasonable basis if the entities jointly provide an * ESS interest for which an amount can be deducted under subsection (1). INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.210 Timing of general deductions If: (a) at a particular time, you provide another entity with money or other property: (i) under an * arrangement; and (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an * ESS interest under an *employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the * ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. Table of sections 83A-305 Acquisition by associates 83A-310 Forfeiture etc. of ESS interest 83A-315 Market value of ESS interest 83A-320 Interests in a trust 83A-325 Application of Division to relationships similar to employment 83A-330 Application of Division to ceasing employment 83A-335 Application of Division to stapled securities 83A-340 Application of Division to indeterminate rights INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.305 Acquisition by associates If an * associate (other than an *employee share trust) of an individual acquires an * ESS interest in relation to the individual's employment (including past or prospective employment), then, for the purposes of this Division: (a) treat the interest as having being acquired by the individual (instead of the associate); and (b) treat any circumstance, right or obligation existing or not existing in relation to the interest in relation to the associate as existing or not existing in relation to the individual; and (c) treat anything done or not done by or in relation to the associate in relation to the interest as being done or not done by or in relation to the individual. Example 1: The following are attributed to the employee, rather than to the associate: (a) the associate's voting rights; (b) the associate's ability or inability to dispose of the ESS interest; (c) whether there is a real risk that the associate may lose the ESS interest; (d) the associate's cost base for the ESS interest. Example 2: If the associate disposes of the ESS interest, the employee is taken to have disposed of the ESS interest instead. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.310 Forfeiture etc. of ESS interest This Division (apart from this Subdivision) is taken never to have applied in relation to an * ESS interest acquired by an individual under an * employee share scheme if: (a) disregarding this section, an amount is included in the individual's assessable income under this Division in relation to the interest; and (b) either: (i) the individual forfeits the interest; or (ii) in the case of an ESS interest that is a beneficial interest in a right--the individual forfeits or loses the interest (without having disposed of the interest or exercised the right); and (c) the forfeiture or loss is not the result of: (i) a choice made by the individual (other than a choice by that individual to cease particular employment); or (ii) a condition of the scheme that has the direct effect of protecting (wholly or partly) the individual against a fall in the * market value of the interest. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.315 Market value of ESS interest (1) Whenever this Division uses the * market value of an * ESS interest, instead use the amount specified in the regulations for the purposes of this section in relation to the interest, if the regulations specify such an amount. (2) To avoid doubt, apply the rule in subsection (1) to the * market value component of any calculation for the purposes of this Division that involves market value. Example: If the regulations specify an amount in relation to an ESS interest, use that amount instead of the market value of the interest in working out: (a) whether there is a discount given in relation to interest; and (b) if so--the amount of the discount. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.320 Interests in a trust (1) This section applies if, at a time: (a) you hold an interest in a trust whose assets include * shares; and (b) that interest corresponds to a particular number of the shares (even if the interest does not correspond to particular shares). (2) For the purposes of this Division, treat yourself as holding at that time a beneficial interest in each of a number of the * shares included in the assets of the trust equal to the number mentioned in paragraph (1)(b). (3) If there are 2 or more classes of * shares included in the assets of the trust, this section operates separately in relation to each class as if the shares in that class were all the shares included in the assets of the trust. (4) This section applies to rights to acquire beneficial interests in * shares in the same way it applies to shares. Note: For the CGT treatment of employee share schemes, see Subdivision 130-D. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.325 Application of Division to relationships similar to employment This Division applies to an individual covered by column 1 of an item in the table as if: (a) he or she were employed by the entity referred to in column 2 of that item; and (b) the thing referred to column 3 of that item constituted that employment. Application of Division to relationships similar to employment Item Column 1 This Division applies to an individual who: Column 2 as if he or she were employed by: Column 3 and this constituted that employment: 1 receives, or is entitled to receive, * work and income support withholding payments (otherwise than as an employee) the entity that pays or provides the work and income support withholding payments (or is liable to do so) the relationship because of which the entity pays or provides the work and income support withholding payments to the individual (or is liable to do so). 2 is engaged in service in a foreign country as the holder of an office the entity by whom the individual is so engaged the holding of the office. 3 provides services to an entity (other than services covered by a previous item in this table and services provided as an employee) the entity the * arrangement between the individual and the entity under which those services are provided. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.330 Application of Division to ceasing employment For the purposes of this Division, you are treated as ceasing employment when you are no longer employed by any of the following: (a) your employer in that employment; (b) a holding company (within the meaning of the Corporations Act 2001) of your employer; (c) a * subsidiary of your employer; (d) a * subsidiary of a holding company (within the meaning of the Corporations Act 2001) of your employer. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.335 Application of Division to stapled securities (1) This Division applies in relation to a stapled security in the same way as it applies in relation to a * share in a company, if at least one of the * ownership interests that are stapled together to form the stapled security is a share in the company. Note: This means the Division also applies to rights to acquire such a stapled security in the same way it applies to rights to acquire a share. (2) This Division applies in relation to a stapled security in the same way as it applies in relation to an ordinary * share in a company, if at least one of the * ownership interests that are stapled together to form the stapled security is an ordinary share in the company. (3) For the purposes of this Division, in relation to a stapled security or right to acquire a beneficial interest in a stapled security, a company is taken to include (as part of the company) each * stapled entity for the stapled security, if at least one of the * ownership interests that are stapled together to form the stapled security is a * share in the company. INCOME TAX ASSESSMENT ACT 1997 - SECT 83A.340 Application of Division to indeterminate rights (1) This section applies if: (a) you acquire a beneficial interest in a right; and (b) the right later becomes a right to acquire a beneficial interest in a * share. Example 1: You acquire a right to acquire, at a future time: (a) shares with a specified total value, rather than a specified number of shares; or (b) an indeterminate number of shares. Example 2: You acquire a right under which the provider must provide you with either ESS interests or cash, whichever the provider chooses. (2) This Division applies as if the right had always been a right to acquire the beneficial interest in the * share. Guide to Part 2-42 INCOME TAX ASSESSMENT ACT 1997 - SECT 84.1 What this Part is about This Part is about 2 issues relating to personal services income. Division 85 limits the entitlements of individuals to deductions relating to their personal services income. Division 86 sets out the tax consequences of individuals' personal services income being diverted to other entities (often called alienation of the income). These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses. Note: This Part may not apply until the 2002-03 income year to participants in the prescribed payments system on 13 April 2000: see item 26 of Schedule 1 to the New Business Tax System (Alienation of Personal Services Income) Act 2000. Table of sections 84-5 Meaning of personal services income 84-10 This Part does not imply that individuals are employees Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 84.5 Meaning of personal services income (1) Your * ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income). Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients' equipment and software to do the work. NewIT's ordinary income from providing the services is Ron's personal services income because it is a reward for his personal efforts or skills. Example 2: Trux Pty. Ltd. owns one semi-trailer, and Tom is the only person who drives it. Trux's ordinary income from transporting goods is not Tom's personal services income because it is produced mainly by use of the semi-trailer, and not mainly as a reward for Tom's personal efforts or skills. Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm's ordinary income or statutory income is Jim's personal services income because it is produced mainly by the firm's business structure, and not mainly as a reward for Jim's personal efforts or skills. (2) Only individuals can have personal services income. (3) This section applies whether the income is for doing work or is for producing a result. (4) The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills. INCOME TAX ASSESSMENT ACT 1997 - SECT 84.10 This Part does not imply that individuals are employees The application of this Part to an individual does not imply, for the purposes of any * Australian law or any instrument made under an Australian law, that the individual is an employee. Guide to Division 85 INCOME TAX ASSESSMENT ACT 1997 - SECT 85.1 What this Division is about This Division sets out amounts, relating to personal services income, that an individual cannot deduct. In particular, deductions that are unavailable to an employee are similarly unavailable to an individual who has personal services income and who is not an employee. However, this Division does not apply if the individual is conducting a personal services business or receives the income as an employee or office holder. Table of sections 85-5 Object of this Division 85-10 Deductions for non-employees relating to personal services income 85-15 Deductions for rent, mortgage interest, rates and land tax 85-20 Deductions for payments to associates etc. 85-25 Deductions for superannuation for associates 85-30 Exception: personal services businesses 85-35 Exception: employees, office holders and religious practitioners 85-40 Application of Subdivision 900-B to individuals who are not employees Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 85.5 Object of this Division The object of this Division is to ensure that individuals who are not conducting * personal services businesses cannot deduct certain amounts (such as amounts that employees cannot deduct). Note: This Division also affects the extent to which a personal services entity is entitled to deductions relating to gaining or producing an individual's personal services income: see section 86-60. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.10 Deductions for non-employees relating to personal services income (1) You cannot deduct under this Act an amount to the extent that it relates to gaining or producing that part of your *ordinary income or *statutory income that is your *personal services income if: (a) the income is not payable to you as an employee; and (b) you would not be able to deduct the amount under this Act if the income were payable to you as an employee. Example: Ruth is an architect who works as an independent contractor for one firm. She is not conducting a personal services business. On most days she travels from her home to the business premises of the firm, where she does her work. She also has a home office, where she does some of her work. This section confirms that Ruth cannot deduct her expenses of travelling between her home and the firm's premises because she could not deduct them if she were an employee. (2) Subsection (1) does not stop you deducting an amount to the extent that it relates to: (a) gaining work; or Examples: Advertising, tendering and quoting for work. (b) insuring against loss of your income or your income earning capacity; or Examples: Sickness, accident and disability insurance. (c) insuring against liability arising from your acts or omissions in the course of earning income; or Examples: Public liability insurance and professional indemnity insurance. (d) engaging an entity that is not your * associate to perform work; or (e) engaging your * associate to perform work that forms part of the principal work for which you gain or produce your *personal services income; or (f) contributing to a fund in order to obtain * superannuation benefits for yourself or for your * SIS dependants in the event of your death; or Note: For deductions for superannuation contributions: see Subdivision 290-C. (g) meeting your obligations under a * workers' compensation law to pay premiums, contributions or similar payments or to make payments to an employee in respect of * compensable work-related trauma; or (h) meeting your obligations, or exercising your rights, under the * GST law. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.15 Deductions for rent, mortgage interest, rates and land tax You cannot deduct under this Act an amount of rent, mortgage interest, rates or land tax: (a) for some or all of your residence; or (b) for some or all of your *associate's residence; to the extent that the amount relates to gaining or producing your *personal services income. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.20 Deductions for payments to associates etc. (1) You cannot deduct under this Act: (a) any payment you make to your *associate; or (b) any amount you incur arising from an obligation you have to your associate; to the extent that the payment or amount relates to gaining or producing your *personal services income. (2) Subsection (1) does not stop you deducting a payment or amount to the extent that it relates to engaging your * associate to perform work that forms part of the principal work for which you gain or produce your *personal services income. (3) An amount or payment that you cannot deduct because of this section is neither assessable income nor * exempt income of your * associate. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.25 Deductions for superannuation for associates (1) You cannot deduct under this Act a contribution you make to a fund or an *RSA to provide for *superannuation benefits payable for your *associate, to the extent that the associate's work for you relates to gaining or producing your *personal services income. (2) Subsection (1) does not stop you deducting a contribution to the extent that your * associate's performance of work forms part of the principal work for which you gain or produce your *personal services income. (3) However, if subsection (2) applies, your deduction cannot exceed the amount you would have to contribute, for the benefit of the * associate, to a * complying superannuation fund or an * RSA in order to ensure that you did not have any *individual superannuation guarantee shortfalls in respect of the associate for any of the * quarters in the income year. (4) To work out the amount you would have to contribute for the purposes of subsection (3), the * associate's salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that neither section 85-10 nor 85-20 prevent you deducting for salary or wages you paid to the associate. Note: See paragraph 85-10(2)(e) for deductions relating to employment of associates. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.30 Exception: personal services businesses This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to income from you conducting a * personal services business. INCOME TAX ASSESSMENT ACT 1997 - SECT 85.35 Exception: employees, office holders and religious practitioners (1) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to * personal services income that you receive as: (a) an employee; or (b) an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (about payments to office holders) in Schedule 1 to the Taxation Administration Act 1953. (2) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to a payment referred to in section 12-47 in Schedule 1 to the Taxation Administration Act 1953 (payments to * religious practitioners). INCOME TAX ASSESSMENT ACT 1997 - SECT 85.40 Application of Subdivision 900-B to individuals who are not employees This Division does not have the effect of applying Subdivision 900-B (about substantiating work expenses) to an individual who is not an employee. Table of Subdivisions Guide to Division 86 86-A General 86-B Entitlement to deductions Guide to Division 86 INCOME TAX ASSESSMENT ACT 1997 - SECT 86.1 What this Division is about Income from the rendering of your personal services is treated as your assessable income if it is the income of another entity and is not promptly paid to you as salary. However, this does not apply if the other entity is conducting a personal services business. There are limits to the other entity's entitlement to deductions to offset against the amount treated as your income. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.5 A simple description of what this Division does (1) This diagram shows an example of a simple arrangement for the alienation of personal services income. Note 1: Solid lines indicate actual payments between the parties. Dotted lines indicate other interactions between the parties. Note 2: This Division also applies to different and more complex arrangements. (2) This Division has the effect of attributing the personal services entity's income from the personal services to the individual who performed them (unless the income is promptly paid to the individual as salary). Certain deduction entitlements of the personal services entity can reduce the amount of the attribution. Table of sections 86-10 Object of this Division 86-15 Effect of obtaining personal services income through a personal services entity 86-20 Offsetting the personal services entity's deductions against personal services income 86-25 Apportionment of entity maintenance deductions among several individuals 86-27 Deduction for net personal services income loss 86-30 Assessable income etc. of the personal services entity 86-35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 86-40 Salary payments shortly after an income year INCOME TAX ASSESSMENT ACT 1997 - SECT 86.10 Object of this Division The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their * personal services income through companies, partnerships or trusts that are not conducting * personal services businesses. Note: The general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 may still apply to cases of alienation of personal services income that fall outside this Division. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.15 Effect of obtaining personal services income through a personal services entity Amounts included in your assessable income (1) Your assessable income includes an amount of * ordinary income or * statutory income of a * personal services entity that is your * personal services income. Example: Continuing example 1 in section 84-5: Assume that NewIT only provides services to one client. Ron's assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron's personal services income. Note: The amount included in your assessable income can be reduced by certain deductions to which the personal services entity is entitled: see section 86-20. (2) A personal services entity is a company, partnership or trust whose * ordinary income or *statutory income includes the * personal services income of one or more individuals. Exception: personal services businesses (3) This section does not apply if that amount is income from the * personal services entity conducting a *personal services business. Note: Even if the entity is conducting a personal services business, it is possible that some of its income is not income from conducting that business. Exception: amounts promptly paid to you as salary or wages (4) This section does not apply to the extent that: (a) the * personal services entity pays that amount to you, as an employee, as salary or wages; and (b) the payment is made before the end of the 14th day after the * PAYG payment period during which the amount became *ordinary income or * statutory income of the entity. Note: The entity is obliged to withhold amounts from salary or wages paid before the end of that day: see section 12-35 in Schedule 1 to the Taxation Administration Act 1953. Exception: exempt income etc. (5) This section only applies to the extent that that amount would be assessable income of the personal services entity if this Division did not apply. Example: If the entity's income includes an amount that is your personal services income for a service on which GST is payable, the amount included in your assessable income will not include the GST, because the GST is neither assessable income nor exempt income of the entity: see section 17-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.20 Offsetting the personal services entity's deductions against personal services income (1) The amount of your * personal services income included in your assessable income under section 86-15 may be reduced (but not below nil) by the amount of certain deductions to which the * personal services entity is entitled. Note 1: Subdivision 86-B limits a personal services entity's entitlement to deductions. Note 2: If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 86-27. The personal services entity cannot deduct the amount of the excess: see section 86-87. (2) Use this method statement to work out whether, and by how much, the amount is reduced: Method statement Step 1. Work out, for the income year, the amount of any deductions (other than *entity maintenance deductions or deductions for amounts of salary or wages paid to you ) to which the *personal services entity is entitled that are deductions relating to your *personal services income. Step 2. Work out, for the income year, the amount of any *entity maintenance deductions to which the *personal services entity is entitled. Step 3. Work out the *personal services entity's assessable income for that income year, disregarding any income it receives that is your *personal services income or the personal services income of anyone else. Step 4. Subtract the amount under step 3 from the amount under step 2. Note 1: Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income. Note 2: If the personal services entity receives another individual's personal services income, see section 86-25. Step 5. If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4. Step 6. If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1. Example 1: Continuing example 1 in section 84-5: Assume these additional facts: * $120,000 of NewIT's income is Ron's personal services income; * NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron's personal services income (step 1); * NewIT has entity maintenance deductions of $8,000 (step 2); * NewIT has investments that produce income. NewIT's assessable income, disregarding Ron's or anyone else's personal services income, is $20,000 (step 3). Because the step 4 amount is less than zero (-$12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron's assessable income is: Example 2: Assume, as an alternative set of facts, that NewIT's assessable income under step 3 was only $2,000. The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron's assessable income would then have been: Note: The personal services entity's deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 86-15. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.25 Apportionment of entity maintenance deductions among several individuals If, in the income year: (a) the amount worked out under step 4 of the method statement in section 86-20 is greater than zero ; and Note: This happens if the entity has entity maintenance deductions that form some or all of the reduction under section 86-20. (b) the * ordinary income or *statutory income of the * personal services entity includes another individual's * personal services income (as well as your personal services income); and (c) the other individual's personal services income is included in the other individual's assessable income under section 86-15; the amount worked out under step 4 is taken to be: where: original step 4 amount is the amount that would be the amount worked out under step 4 if this section did not apply. "total personal services income" is the sum of all the amounts of personal services income (whether your personal services income or someone else's) that are included in the personal services entity's ordinary income or statutory income for the income year. "your personal services income" is the sum of all the amounts of your personal services income that are included in the personal services entity's ordinary income or statutory income for the income year.Example: Continuing example 2 in section 86-20: Assume that Robyn, another computer consultant, joined NewIT, and NewIT's ordinary income from providing the services also includes Robyn's personal services income of $168,000. Because NewIT now receives the personal services income of someone else, Ron's step 4 amount is reduced as follows: Under step 5 of the method statement in section 86-20, the amount of the reduction under that section is therefore $52,500, and the amount included in Ron's assessable income is $67,500. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.27 Deduction for net personal services income loss If your personal services deduction amount exceeds your unreduced personal services income, then you can deduct the excess amount. For this purpose: (a) your personal services deduction amount is the amount of deductions relating to your * personal services income worked out under step 1 of the method statement in section 86-20, increased by the amount (if greater than zero) worked out under step 4 of the method statement; and (b) your unreduced personal services income is the personal services income that would have been included in your assessable income for the income year if there had not been any reduction under section 86-20. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.30 Assessable income etc. of the personal services entity * Ordinary income or *statutory income of the *personal services entity is neither assessable income nor *exempt income of the entity, to the extent that it is * personal services income included in your assessable income under section 86-15. Note: Subsection 118-20(4) prevents this income being treated as a capital gain. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes (1) To the extent that a payment by the *personal services entity, or by your *associate, is a payment to you or any of your associates of: (a) *personal services income included in your assessable income under section 86-15; or (b) any other amount that is attributable to that income; the payment: (c) is neither assessable income nor *exempt income of the entity receiving it; and Note: Subsection 118-20(4) prevents this income being treated as a capital gain. (d) is not an amount that the entity making it can deduct. Note: Section 118-65 prevents this amount being treated as a capital loss. Example: Continuing example 2 in section 86-20: Assume that NewIT had paid Jill, Ron's wife, an amount for work that is not the principal work of NewIT. The payment is made from money already included in Ron's assessable income under section 86-15. The amount is neither assessable income nor exempt income of Jill, and NewIT cannot deduct the amount. (2) To the extent that you are entitled, or any of your *associates are entitled, to a share of the net income of the *personal services entity, or of any of your associates, and that income is: (a) *personal services income included in your assessable income under section 86-15; or (b) any other amount that is attributable to that income; that share is neither assessable income nor *exempt income of the entity receiving it or entitled to receive it. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.40 Salary payments shortly after an income year (1) If: (a) before the end of 14 July in a particular income year, you receive, as salary or wages, * personal services income of yours from the * personal services entity; and (b) failure to make the payment before the end of 14 July would have resulted in an amount of income being included in your assessable income under section 86-15 for the preceding income year; you are taken to have received the payment on 30 June of that preceding income year. Example: Continuing example 2 in section 86-20: Assume that NewIT is a small withholder for PAYG withholding purposes, and its PAYG payment period covering April 2001 to June 2001 is the quarter ending on 30 June 2001. NewIT's income for that period (after taking into account any reductions under sections 86-20 and 86-25) includes $20,000 that is Ron's personal services income, and NewIT pays this to Ron on 12 July 2001. The $20,000 that Ron receives is assessable income for the income year ended on 30 June 2001. (2) However, this section does not affect the time at which the * personal services entity is treated as having paid the salary or wages. Note 1: Therefore neither the timing of the entity's deduction for the payment, nor the timing of the obligation to withhold amounts under section 12-35 in Schedule 1 to the Taxation Administration Act 1953, is affected. Note 2: However, these payments are treated as relating to the preceding income year for the purposes of the rules relating to payment summaries and PAYG credits (see Subdivisions 16-C and 18-A in Schedule 1 to the Taxation Administration Act 1953). Table of sections 86-60 General rule for deduction entitlements of personal services entities 86-65 Entity maintenance deductions 86-70 Car expenses 86-75 Superannuation 86-80 Salary or wages promptly paid 86-85 Deduction entitlements of personal services entities for amounts included in an individual's assessable income 86-87 Personal services entity cannot deduct net personal services income loss 86-90 Application of Divisions 28 and 900 to personal services entities INCOME TAX ASSESSMENT ACT 1997 - SECT 86.60 General rule for deduction entitlements of personal services entities A * personal services entity cannot deduct under this Act an amount to the extent that it relates to gaining or producing an individual's *personal services income, unless: (a) the individual could have deducted the amount under this Act if the circumstances giving rise to the entity's entitlement to deduct the amount had applied instead to the individual; or Note: In particular, Division 85 specifies limits on an individual's entitlements to deductions relating to the individual's personal services income. (b) the entity receives the individual's *personal services income in the course of conducting a * personal services business. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.65 Entity maintenance deductions (1) Section 86-60 does not stop a * personal services entity deducting an amount to the extent that it is an * entity maintenance deduction. Note: See section 86-25 for how entity maintenance deductions are offset against a personal services entity's income. (2) Each of these is an entity maintenance deduction: (a) any fee or charge payable by the entity for opening, operating or closing an account with an * ADI; (b) any deduction under section 25-5 (about tax-related expenses); (c) any loss or outgoing incurred in relation to preparation or lodgment of any document the entity is required to lodge under the Corporations Act 2001; (d) any fee or charge payable by the entity to an * Australian government agency for any licence, permission, approval, authorisation, registration or certification (however described) that is granted or given under an * Australian law. (3) However, paragraph (2)(c) does not include any payment that the entity makes to an * associate. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.70 Car expenses Cars used solely for business (1) Section 86-60 does not stop a * personal services entity deducting a * car expense for a * car of which there is no * private use. Other cars (2) Section 86-60 does not stop a * personal services entity deducting: (a) a * car expense; or (b) an amount of tax payable under the Fringe Benefits Tax Assessment Act 1986 for a * car fringe benefit; for a * car of which there is *private use. However, there cannot be, at the same time, more than one car for which such deductions can arise in relation to gaining or producing the same individual's *personal services income. (3) If there is more than one * car to which subsection (2) could apply at the same time, the entity must choose the car to which subsection (2) applies at that time. The choice remains in effect until the entity ceases to * hold that car. Example: Continuing example 2 in section 86-20: Assume that NewIT provides 3 cars to Ron. Car 1 is used solely for business purposes and cars 2 and 3 are used for private purposes. NewIT can deduct all the car expenses it incurs for car 1. It can also deduct all the car expenses it incurs for its choice of either car 2 or car 3, as well as the fringe benefits tax it pays for that car. However, it cannot deduct any car expenses or fringe benefits tax for the car that it does not choose. Note: If car expenses for a car are not deductible because of section 86-60, the car benefit being provided is an exempt benefit for the purposes of fringe benefits tax: see subsection 8(4) of the Fringe Benefits Tax Assessment Act 1986. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.75 Superannuation (1) Section 86-60 does not stop a * personal services entity deducting a contribution the entity makes to a fund or an *RSA for the purpose of making provision for *superannuation benefits payable for an individual whose *personal services income is included in the entity's * ordinary income or * statutory income. For deductions for superannuation contributions: see Subdivision AA of Division 3 of Part III of the Income Tax Assessment Act 1936. (2) However, if: (a) the individual performs less than 20% (by * market value) of the entity's principal work; and (b) the individual is an * associate of another individual whose *personal services income is included in the entity's * ordinary income or *statutory income; the entity's deduction cannot exceed the amount it would have to contribute, for the benefit of the individual, to a * complying superannuation fund or an * RSA in order to ensure that it did not have any *individual superannuation guarantee shortfalls in respect of the individual for any of the * quarters in the income year. (3) To work out the amount the entity would have to contribute for the purposes of subsection (2), the individual's salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that section 86-60 does not prevent the entity deducting for salary or wages it paid to the individual. Note: Section 86-60 will apply the limitations under sections 85-10 and 85-20 on an individual's entitlement to deductions (but see paragraph 85-10(2)(e) on employment of associates). INCOME TAX ASSESSMENT ACT 1997 - SECT 86.80 Salary or wages promptly paid Section 86-60 does not stop a * personal services entity deducting an amount for salary or wages it pays to the individual referred to in that section before the end of the 14th day after the * PAYG payment period during which the amount became * ordinary income or *statutory income of the entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.85 Deduction entitlements of personal services entities for amounts included in an individual's assessable income The fact that a * personal services entity: (a) incurs an amount in gaining or producing an individual's assessable income; or (b) uses a * depreciating asset, or has it installed ready for use, for the * purpose of producing assessable income of an individual; does not stop the entity deducting the loss or outgoing, or deducting an amount for the decline in value of the asset, under this Act if: (c) the entity incurs the amount in gaining or producing, or uses or installs the depreciating asset for the purpose of producing, its * ordinary income or *statutory income; and (d) the income is included in the individual's assessable income under section 86-15. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.87 Personal services entity cannot deduct net personal services income loss The total amount of the deductions to which a * personal services entity is entitled for an income year is reduced by the amount of any deduction that an individual, whose * personal services income is ordinary or statutory income of the entity for that income year, is entitled to under section 86-27. INCOME TAX ASSESSMENT ACT 1997 - SECT 86.90 Application of Divisions 28 and 900 to personal services entities This Division does not have the effect of applying Division 28 (about car expenses) or Division 900 (about substantiation rules) to a * personal services entity. Note: Divisions 28 and 900 can still apply to a personal services entity that is a partnership: see subsections 28-10(2) and 900-5(2). Table of Subdivisions Guide to Division 87 87-A General 87-B Personal services business determinations Guide to Division 87 INCOME TAX ASSESSMENT ACT 1997 - SECT 87.1 What this Division is about Divisions 85 and 86 do not apply to personal services income that is income from conducting a personal services business. It is not intended that the Divisions apply to independent contractors. A personal services business exists if there is a personal services business determination or if one or more of 4 tests for what is a personal services business are met. Regardless of how much of your personal services income is paid from one source, you can self-assess against the results test to determine whether you are an independent contractor. The results test is based on the traditional tests for determining independent contractors and it is intended that it apply accordingly. However, you cannot "self-assess" whether you meet any of the other 3 tests if 80% or more of your personal services income is from one source. In these cases, you need a personal services business determination in order to be treated as conducting a personal services business. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.5 Diagram showing the operation of this Division This diagram shows how this Division operates to ascertain whether personal services income is income from conducting a personal services business. Table of sections 87-10 Object of this Division 87-15 What is a personal services business? 87-18 The results test for a personal services business 87-20 The unrelated clients test for a personal services business 87-25 The employment test for a personal services business 87-30 The business premises test for a personal services business 87-35 Personal services income from Australian government agencies 87-40 Application of this Division to certain agents INCOME TAX ASSESSMENT ACT 1997 - SECT 87.10 Object of this Division The object of this Division is to define * personal services businesses in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the * personal services income of individuals. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.15 What is a personal services business? (1) An individual or * personal services entity conducts a personal services business if: (a) for an individual--a * personal services business determination is in force relating to the individual's * personal services income; or (b) for a personal services entity--a personal services business determination is in force relating to an individual whose personal services income is included in the entity's *ordinary income or * statutory income; or (c) in any case--the individual or entity meets at least one of the 4 * personal services business tests in the income year for which the question whether the individual or entity is conducting a personal services business is in issue. Note 1: For personal services business determinations, see Subdivision 87-B. Note 2: Under subsection (3), the personal services business tests, apart from the results test under section 87-18, do not apply if 80% or more of your personal services income is from one source (but they can still be used in deciding whether to make a personal services business determination). (2) The 4 personal services business tests are: (a) the results test under section 87-18; and (b) the unrelated clients test under section 87-20; and (c) the employment test under section 87-25; and (d) the business premises test under section 87-30. (3) However, if 80% or more of an individual's * personal services income (not including income referred to in subsection (4)) during an income year is income from the same entity (or one entity and its * associates), and: (a) the individual's personal services income is not included in a *personal services entity's *ordinary income or * statutory income during an income year, and the individual does not meet the results test under section 87-18 in that income year; or (b) the individual's personal services income is included in a personal services entity's ordinary income or statutory income during an income year, and the entity does not, in relation to the individual, meet the results test under section 87-18 in that income year; the individual's personal services income is not taken to be from conducting a * personal services business unless: (c) when the personal services income is gained or produced, a * personal services business determination is in force relating to the individual's personal services income; and (d) if the determination was made on the application of a personal services entity--the individual's personal services income is income from the entity conducting the personal services business. Note: Sections 87-35 and 87-40 affect the operation of subsection (3) in relation to Australian government agencies and certain agents. (4) Subsection (3) does not apply to income: (a) that the individual receives as an employee; or (b) that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or (c) to the extent that it is a payment referred to in section 12-47 (payments to * religious practitioners) in that Schedule. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.18 The results test for a personal services business (1) An individual meets the results test in an income year if, in relation to at least 75% of the individual's * personal services income (not including income referred to in subsection (2)) during the income year: (a) the income is for producing a result; and (b) the individual is required to supply the * plant and equipment, or tools of trade, needed to perform the work from which the individual produces the result; and (c) the individual is, or would be, liable for the cost of rectifying any defect in the work performed. (2) Paragraph (1)(a) does not apply to income: (a) that the individual receives as an employee; or (b) that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or (c) to the extent that it is a payment referred to in section 12-47 (payments to * religious practitioners) in that Schedule. (3) A *personal services entity meets the results test in an income year if, in relation to at least 75% of the * personal services income of one or more individuals that is included in the personal services entity's * ordinary income or * statutory income during the income year: (a) the income is for producing a result; and (b) the personal services entity is required to supply the * plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and (c) the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed. (4) For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee: (a) for the * personal services income from the work to be for producing a result; and (b) for the entity to be required to supply the * plant and equipment, or tools of trade, needed to perform the work; and (c) for the entity to be liable for the cost of rectifying any defect in the work performed; as the case requires. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.20 The unrelated clients test for a personal services business (1) An individual or a * personal services entity meets the unrelated clients test in an income year if: (a) during the year, the individual or personal services entity gains or produces income from providing services to 2 or more entities that are not * associates of each other, and are not associates of the individual or of the personal services entity; and (b) the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services. Note: Sections 87-35 and 87-40 affect the operation of paragraph (1)(a) in relation to Australian government agencies and certain agents. (2) The individual or * personal services entity is not treated, for the purposes of paragraph (1)(b), as having made offers or invitations to provide services merely by being available to provide the services through an entity that conducts a * business of arranging for persons to provide services directly for clients of the entity. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.25 The employment test for a personal services business (1) An individual meets the employment test in an income year if: (a) the individual engages one or more entities (other than * associates of the individual that are not individuals) to perform work; and (b) that entity performs, or those entities together perform, at least 20% (by * market value) of the individual's principal work for that year. (2) A * personal services entity meets the employment test in an income year if: (a) the entity engages one or more other entities to perform work, other than: (i) individuals whose * personal services income is included in the entity's * ordinary income or *statutory income; or (ii) * associates of the entity that are not individuals; and (b) that other entity performs, or those other entities together perform, at least 20% (by * market value) of the entity's principal work for that year. (2A) If the * personal services entity is a partnership, work that a partner performs is taken, for the purposes of subsection (2), to be work that the personal services entity engages another entity to perform. (3) An individual or a * personal services entity also meets the employment test in an income year if, for at least half the income year, the individual or entity has one or more apprentices. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.30 The business premises test for a personal services business (1) An individual or a * personal services entity meets the business premises test in an income year if, at all times during the income year, the individual or entity maintains and uses business premises: (a) at which the individual or entity mainly conducts activities from which * personal services income is gained or produced; and (b) of which the individual or entity has exclusive use; and (c) that are physically separate from any premises that the individual or entity, or any * associate of the individual or entity, uses for private purposes; and (d) that are physically separate from the premises of the entity to which the individual or entity provides services and from the premises of any associate of the entity to which the individual or entity provides services. (2) The individual or entity need not maintain and use the same business premises throughout the income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.35 Personal services income from Australian government agencies (1) * Australian government agencies are not treated as *associates of each other for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). Example: You receive 60% of your personal services income from a Department of a State government and 40% of your personal services income from a corporation in which that State has a majority shareholding. You are not treated as if 80% or more of your personal services income is income from the same entity and that entity's associates, and therefore you will not need a personal services business determination to satisfy subsection 87-15 (3). In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87-20 (1), because you receive your personal services income from 2 entities that are not treated as associates of each other. (2) Each Agency within the meaning of the Public Service Act 1999: (a) is treated as a separate entity; and (b) is not treated as an * associate of any other such Agency, or of any * Australian government agency; for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). Example: You receive 70% of your personal services income from the Commonwealth Department of Treasury and 30% of your personal services income from the Australian Taxation Office (neither body has a legal identity separate from the Commonwealth Government). You are not treated as if 80% or more of your personal services income is income from the same entity, or from the same entity and that entity's associates, and therefore you will not need a personal services business determination to satisfy subsection 87-15 (3). In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87-20 (1), because you receive your personal services income from 2 bodies that are treated as separate entities and that are not treated as associates of each other. (3) Each part of the government of a State or Territory, and each part of an authority of the State or Territory, that has, under a law of the State or Territory, a status corresponding to an Agency within the meaning of the Public Service Act 1999: (a) is treated as a separate entity; and (b) is not treated as an * associate of any other part of such a government or authority, or of any * Australian government agency; for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). INCOME TAX ASSESSMENT ACT 1997 - SECT 87.40 Application of this Division to certain agents Object of this section (1) The object of this section is to modify the operation of this Division for * agents who bear entrepreneurial risk in the way they provide services. Agent rules do not apply (1A) The rules in section 960-105 (Certain entities treated as agents) do not apply to this section. Agents covered by this section (2) Subsection 87-15(3) and section 87-20 apply, in the manner specified in this section, to an individual or * personal services entity if: (a) the individual or personal services entity is an * agent of another entity (the principal) but not the principal's employee; and (b) the agent receives income from the principal that is for services that the agent provides to other entities (customers) on the principal's behalf; and (c) at least 75% of that income is commissions, or fees, based on the agent's performance in providing services to the customers on the principal's behalf; and (d) the agent actively seeks other entities to whom the agent could provide services on the principal's behalf; and (e) the agent does not provide any services to the customers, on the principal's behalf, using premises: (i) that the principal or an * associate of the principal owns; or (ii) in which the principal or an associate of the principal has a leasehold interest; unless the agent uses the premises under an arrangement entered into at arm's length. Whether personal services income is from one source (3) If the * agent is an individual, in applying subsection 87-15(3) to the * personal services income of the agent during an income year, any part of the agent's personal services income from the principal that: (a) the agent gains or produces during the income year; and (b) is for services that the agent provided to a customer on the principal's behalf in the income year or an earlier income year; is treated as if it were personal services income from the customer, and not personal services income from the principal. (4) If the * agent is a *personal services entity, in applying subsection 87-15(3) to an individual's * personal services income that is included in the entity's *ordinary income or * statutory income during an income year, any part of the individual's personal services income from the principal that: (a) the agent gains or produces during the income year; and (b) is for services that the individual or the agent provided to a customer on the principal's behalf in the income year or an earlier income year; is treated as if it were personal services income from the customer, and not personal services income from the principal. The unrelated clients test for a personal services business (5) In determining whether, during an income year, the * agent meets the unrelated clients test under section 87-20, any services the agent provided in the income year or an earlier income year: (a) for which the agent gains or produces, during the income year, personal services income from the principal; and (b) that were provided to a customer on the principal's behalf; are treated for the purposes of paragraph 87-20(1)(a) as if the agent, and not the principal, provided them to the customer. Table of sections 87-60 Personal services business determinations for individuals 87-65 Personal services business determinations for personal services entities 87-70 Applying etc. for personal services business determinations 87-75 When personal services business determinations have effect 87-80 Revoking personal services business determinations 87-85 Review of decisions INCOME TAX ASSESSMENT ACT 1997 - SECT 87.60 Personal services business determinations for individuals Making etc. personal services business determinations (1) The Commissioner may, by giving written notice to an individual: (a) make a personal services business determination relating to the individual; or (b) vary such a determination. (2) The Commissioner may, in the notice, specify: (a) the day on which the determination or variation takes effect, or took effect; (b) the period for which the determination has effect; (c) conditions to which the determination is subject. Matters about which the Commissioner must be satisfied (3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met. First alternative--results, employment or business premises test met or reasonably expected to be met (3A) The conditions in this subsection are that: (a) the individual could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's * personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests. Second alternative--unusual circumstances prevented the results, employment or business premises test from being met (3B) The conditions in this subsection are that: (a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's * personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests. (4) For the purposes of paragraph (3B)(a) but without limiting the scope of that paragraph, unusual circumstances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87-20 if: (a) the individual starts a * business during the income year, and can reasonably be expected to meet the test in subsequent income years; or (b) the individual provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years . Third alternative--unrelated clients test was met but 80% or more of income from same source because of unusual circumstances (5) The conditions in this subsection are that: (a) the individual could reasonably be expected to meet, or met, the unrelated clients test under section 87-20; and (b) because of unusual circumstances applying to the individual in the income year, 80% or more of the individual's * personal services income (not including income mentioned in subsection 87-15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its * associates); and (c) the individual's personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87-20. Fourth alternative--unrelated clients test not met because of unusual circumstances (6) The conditions in this subsection are that: (a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87-20; and (b) if 80% or more of the individual's * personal services income (not including income mentioned in subsection 87-15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its * associates)--that is the case only because of unusual circumstances applying to the individual in the income year; and (c) the individual's personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87-20. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.65 Personal services business determinations for personal services entities Making etc. personal services business determinations (1) The Commissioner may, by giving written notice to a * personal services entity whose * ordinary income or *statutory income includes some or all of an individual's * personal services income: (a) make a personal services business determination relating to the individual's personal services income included in the entity's ordinary income or statutory income; or (b) vary such a determination. (2) The Commissioner may, in the notice, specify: (a) the day on which the determination or variation takes effect, or took effect; (b) the period for which the determination has effect; (c) conditions to which the determination is subject. Matters about which the Commissioner must be satisfied (3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met. First alternative----results, employment or business premises test met or reasonably expected to be met (3A) The conditions in this subsection are that: (a) the entity could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's * personal services income included in the entity's * ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests. Second alternative--unusual circumstances prevented the results, employment or business premises test from being met (3B) The conditions in this subsection are that: (a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's * personal services income included in the entity's * ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests. (4) For the purposes of paragraph (3B)(a) but without limiting the scope of that paragraph, unusual circumstances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87-20 if: (a) the* personal services entity starts a *business during the income year, and can reasonably be expected to meet that test in subsequent income years; or (b) the personal services entity provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years . Third alternative--unrelated clients test was met but 80% or more of income from same source because of unusual circumstances (5) The conditions in this subsection are that: (a) the entity could reasonably be expected to meet, or met, the unrelated clients test under section 87-20; and (b) because of unusual circumstances applying to the entity in the income year, 80% or more of the individual's * personal services income (not including income mentioned in subsection 87-15(4)) included in the entity's * ordinary income or * statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its * associates); and (c) the individual's personal services income included in the entity's ordinary income or statutory income could reasonably be expected to be, or was, from the entity conducting activities that met the unrelated clients test under section 87-20. Fourth alternative--unrelated clients test not met because of unusual circumstances (6) The conditions in this subsection are that: (a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87-20; and (b) if 80% or more of the individual's * personal services income (not including income mentioned in subsection 87-15(4)) included in the entity's * ordinary income or *statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its * associates)--that is the case only because of unusual circumstances applying to the entity in the income year; and (c) the individual's personal services income included in the entity's ordinary income or statutory income could reasonably be expected to be, or was, from the entity conducting activities that met the unrelated clients test under section 87-20. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.70 Applying etc. for personal services business determinations (1) An individual or a * personal services entity may apply to the Commissioner, in the * approved form: (a) for a * personal services business determination; or (b) for a variation of a personal services business determination. (2) The Commissioner may request the applicant to give the Commissioner specified information, or a specified document, that the Commissioner needs to decide the application. (3) If the Commissioner has not decided the application within 60 days after it is made, the applicant may, at any time, give the Commissioner written notice that the applicant wishes to treat the application as having been refused. (4) If the applicant gives notice under subsection (3), the Commissioner is taken, for the purposes of section 87-85, to have refused the application on the day on which the notice is given. (5) For the purposes of measuring the 60 days mentioned in subsection (3), disregard each period (if any): (a) starting on the day when the Commissioner requests the applicant under subsection (2) to give the Commissioner specified information or a specified document; and (b) ending at the end of the day the applicant gives the Commissioner the specified information or document. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.75 When personal services business determinations have effect (1) The determination, or a variation of the determination, has effect, or is taken to have had effect, on and from: (a) the day specified in the notice as the day on which the determination or variation takes effect, or took effect; or (b) if a day is not specified--the day on which the notice is given. (2) The determination ceases to have effect at the end of the earliest day on which one or more of these occurs: (a) one or more conditions to which the determination is subject are not met; (b) the Commissioner revokes the determination; (c) the period for which the determination has effect comes to an end. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.80 Revoking personal services business determinations The Commissioner must, by giving written notice to the individual or * personal services entity on whose application a *personal services business determination was made, revoke the determination if the Commissioner is no longer satisfied that there are grounds on which the determination could be made. INCOME TAX ASSESSMENT ACT 1997 - SECT 87.85 Review of decisions A person who is dissatisfied with; (a) a decision of the Commissioner to make, vary or revoke a * personal services business determination; or (b) the Commissioner's refusal of an application for a personal services business determination or for a variation of a personal services business determination; may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953. General overview INCOME TAX ASSESSMENT ACT 1997 - SECT 100.1 What this Division is about This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax (CGT). It will help you to understand your current liabilities, and to factor CGT into your on-going financial affairs. Table of sections 100-5 Effect of this Division 100-10 Fundamentals of CGT 100-15 Overview of Steps 1 and 2 Step 1--Have you made a capital gain or a capital loss? 100-20 What events attract CGT? 100-25 What are CGT assets? 100-30 Does an exception or exemption apply? 100-33 Can there be a roll-over? Step 2--Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? 100-40 What factors come into calculating a capital gain or loss? 100-45 How to calculate the capital gain or loss for most CGT events Step 3--Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 100-55 How do you comply with CGT? Keeping records for CGT purposes 100-60 Why keep records? 100-65 What records? 100-70 How long you need to keep records INCOME TAX ASSESSMENT ACT 1997 - SECT 100.5 Effect of this Division This Division is a * Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.10 Fundamentals of CGT (1) CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the income year, reduced by certain capital losses you have made. See later in this Guide (section 100-50) for more detail. (2) When you prepare your income tax return, you need to check whether you have made any capital gains for the income year. You also need to check whether you have made any capital losses. You cannot deduct a capital loss from your assessable income, but it will reduce your capital gain in the current income year or later income years. (3) You will also need to consider the impact of CGT when doing your financial planning. In particular, you will need adequate record-keeping to deal most effectively with any immediate or future CGT liability. To give you a sense of the range of things affected by CGT, if you are involved with any of the following, you may have a CGT liability now or at some time in the future: * leases * marriage or relationship breakdown * inheritance * working from home * subdividing land * shares * goodwill * a civil court case * contracts * trusts * options * bankruptcy * a company liquidation * incorporating a company * leaving Australia INCOME TAX ASSESSMENT ACT 1997 - SECT 100.15 Overview of Steps 1 and 2 Note: Capital proceeds and cost base are not relevant for some CGT events, for example CGT event K7 or any of the CGT events created by Subdivision 104-L. Step 1 --Have you made a capital gain or a capital loss? INCOME TAX ASSESSMENT ACT 1997 - SECT 100.20 What events attract CGT? (1) You can make a capital gain or loss only if a CGT event happens. (2) There are a wide range of CGT events. Some happen often and affect many different taxpayers. Others are rare and affect only a few. Some examples of CGT events Situation Event Which CGT event? You own shares you acquired on or after 20 September 1985 You sell them CGT event A1 You sell a business You agree with the purchaser not to operate a similar business in the same area CGT event D1 You are a lessor You receive a payment for changing the lease CGT event F5 You own shares in a company The company makes a payment (not a dividend) to you as a shareholder CGT event G1 A summary of all the CGT events is in section 104-5. Identifying the time of a CGT event (3) The specific time when a CGT event happens is important for various reasons: in particular, for working out whether a capital gain or loss from the event affects your income tax for the current or another income year. If a CGT event involves a contract, the time of the event will often be when the contract is made, not when it is completed. The time of each CGT event is explained early in the relevant section in Division 104. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.25 What are CGT assets? (1) Most CGT events involve a CGT asset. (For many, there is an exception if the CGT asset was acquired before 20 September 1985.) However, many CGT events are concerned directly with capital receipts and do not involve a CGT asset. See the summary of the CGT events in section 104-5. (2) Some CGT assets are reasonably well-known: • land and buildings, for example, a weekender; • shares; • units in a unit trust; • collectables which cost over $500, for example, jewellery or an artwork; • personal use assets which cost over $10,000, for example, a boat. (3) Other CGT assets are not so well-known. For example: • your home; • contractual rights; • goodwill; • foreign currency. For a full explanation of what things are CGT assets: see Division 108. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.30 Does an exception or exemption apply? (1) Once you identify a CGT event which applies to you, you need to know if there is an exception or exemption that would reduce the capital gain or loss or allow you to disregard it. (2) There are 4 categories of exemptions: 1. exempt assets: for example, cars; 2. exempt or loss-denying transactions: for example, compensation for personal injury or your tenancy comes to an end; 3. anti-overlap provisions (that reduce your capital gain by the amount that is otherwise assessable); 4. small business relief. Note: Most of the exceptions are in Division 104. You will find most of the possible exemptions in Division 118. The small business relief provisions are in Division 152. Some exemptions are limited (3) Take the family home for example. Generally, you are exempt from CGT when you make a capital gain on disposing of your main residence. But this can change depending on how you came to own the house and what you have done with it. For example, if you rent it out, you may be liable to CGT when you sell it. For the limits on the general exemption of your main residence: see Subdivision 118-B. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.33 Can there be a roll-over? (1) Roll-overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired: see Subdivision 124-B) and some are automatic (for example, where an asset is transferred because of marriage or relationship breakdown: see Subdivision 126-A). (2) There are 2 types of roll-over: 1. a replacement-asset roll-over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one; 2. a same-asset roll-over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved. Note: The replacement-asset roll-overs are listed in section 112-115, and the same-asset roll-overs are listed in section 112-150. Step 2 --Work out the amount of the capital gain or loss INCOME TAX ASSESSMENT ACT 1997 - SECT 100.35 What is a capital gain or loss? For most CGT events: • You make a capital gain if you receive (or are entitled to receive) capital amounts from the CGT event which exceed your total costs associated with that event. • You make a capital loss if your total costs associated with the CGT event exceed the capital amounts you receive (or are entitled to receive) from the event. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.40 What factors come into calculating a capital gain or loss? Capital proceeds (1) For most CGT events, the capital amounts you receive (or are entitled to receive) from the event are called the capital proceeds. To work out the capital proceeds: see Division 116. Cost base and reduced cost base (2) For most CGT events, your total costs associated with the event are worked out in 2 different ways: • For the purpose of working out a capital gain, those costs are called the cost base of the CGT asset. • For the purpose of working out a capital loss, those costs are called the reduced cost base of the asset. One of the main differences is that the costs may be indexed for inflation occurring before 1 October 1999 in working out a capital gain for a CGT asset acquired at or before 11.45 am on 21 September 1999 (which reduces the size of the gain), but not in working out a capital loss. To work out the cost base and reduced cost base: see Division 110. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.45 How to calculate the capital gain or loss for most CGT events 1. Work out your capital proceeds from the CGT event. 2. Work out the cost base for the CGT asset. 3. Subtract the cost base from the capital proceeds. 4. If the proceeds exceed the cost base, the difference is your capital gain. 5. If not, work out the reduced cost base for the asset. 6. If the reduced cost base exceeds the capital proceeds, the difference is your capital loss. 7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss. Step 3 --Work out your net capital gain or loss for the income year INCOME TAX ASSESSMENT ACT 1997 - SECT 100.50 How to work out your net capital gain or loss 1. Reduce your capital gains for the income year, in the order you choose, by your capital losses for the income year. (If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. You cannot deduct a net capital loss from your assessable income.) 2. Reduce any remaining capital gains, in the order you choose, by any unapplied net capital losses for previous income years. 3. Reduce any remaining discount capital gains by the discount percentage. To find out what is a discount capital gain and the discount percentage: see Division 115. 4. If you carry on a small business, apply the small business concessions in further reduction of your capital gains (whether or not the gains are discount capital gains). For the small business concessions: see Division 152. 5. Add up: (a) any remaining capital gains that are not discount capital gains; and (b) any remaining discount capital gains. The total is your net capital gain. For the rules on working out your net capital gain or loss: see Division 102. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.55 How do you comply with CGT? Declare any net capital gain as assessable income in your income tax return. Defer any net capital loss to the next income year for which you have capital gains that exceed the capital losses for that income year. Keeping records for CGT purposes INCOME TAX ASSESSMENT ACT 1997 - SECT 100.60 Why keep records? 1. To ensure you do not disadvantage yourself. 2. To comply as easily as possible. 3. To plan for your CGT position in future income years. 4. The law requires you to: see Division 121. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.65 What records? Keeping full records will make it easier for you to comply. For example, keep records of: • receipts of purchase or transfer; • interest on money you borrowed; • costs of agents, accountants, legal, advertising etc.; • insurance costs and land rates or taxes; • any market valuations; • costs of maintenance, repairs or modifications; • brokerage on shares; • legal costs. INCOME TAX ASSESSMENT ACT 1997 - SECT 100.70 How long you need to keep records The law requires you to keep records for 5 years after a CGT event has happened. Guide to Division 102 INCOME TAX ASSESSMENT ACT 1997 - SECT 102.1 What this Division is about This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.) INCOME TAX ASSESSMENT ACT 1997 - SECT 102.3 Concessions in working out your net capital gain (1) Concessional rules apply to working out the net capital gain of some entities (see subsection (2)) if: (a) they have a capital gain (a discount capital gain) from a CGT asset acquired at least 12 months before the CGT event that caused the capital gain; and (b) they have not chosen to include indexation in the cost base of the asset for working out the capital gain (if relevant). Note 1: Division 115 explains what is a discount capital gain. Note 2: Under Division 110, the entity can choose to include indexation in the cost base of a CGT asset acquired at or before 11.45 am on 21 September 1999. (2) Only these entities get the concession: (a) individuals; (b) complying superannuation entities; (c) trusts; (d) life insurance companies, in relation to discount capital gains for CGT events in respect of CGT assets that are complying superannuation/FHSA assets. Note: Shareholders in a listed investment company can also receive a concession equivalent to a discount capital gain: see Subdivision 115-D. (3) The concession is that the net capital gain includes only part of the amount of the discount capital gain left after applying capital losses and net capital losses from earlier income years. See subsection 102-5(1). Table of sections Operative provisions 102-5 Assessable income includes net capital gain 102-10 How to work out your net capital loss 102-15 How to apply net capital losses 102-20 Ways you can make a capital gain or a capital loss 102-22 Amounts of capital gains and losses 102-23 CGT event still happens even if gain or loss disregarded 102-25 Order of application of CGT events 102-30 Exceptions and modifications Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 102.5 Assessable income includes net capital gain (1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way: Working out your net capital gain Step 1. Reduce the * capital gains you made during the income year by the * capital losses (if any) you made during the income year. Note 1: You choose the order in which you reduce your capital gains. You have a net capital loss for the income year if your capital losses exceed your capital gains: see section 102-10. Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152-B permits you, in some circumstances, to disregard a capital gain on an asset you held for at least 15 years. Step 2. Apply any previously unapplied * net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of * capital gains under step 1 (including any capital gains not reduced under that step because the * capital losses were less than the total of your capital gains). Note 1: Section 102-15 explains how to apply net capital losses. Note 2: You choose the order in which you reduce the amounts. Step 3. Reduce by the * discount percentage each amount of a * discount capital gain remaining after step 2 (if any). Note: Only some entities can have discount capital gains, and only if they have capital gains from CGT assets acquired at least a year before making the gains. See Division 115. Step 4. If any of your * capital gains (whether or not they are * discount capital gains) qualify for any of the small business concessions in Subdivisions 152-C, 152-D and 152-E, apply those concessions to each capital gain as provided for in those Subdivisions. Note 1: The basic conditions for getting these concessions are in Subdivision 152-A. Note 2: Subdivision 152-C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152-E does not apply to CGT events J5 and J6. Step 5. Add up the amounts of * capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) However, if during the income year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; any * net capital loss you made for an earlier income year must be disregarded in working out whether you made a * net capital gain for the income year or a later one. (3) Subsection (2) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.10 How to work out your net capital loss (1) You work out if you have a net capital loss for the income year in this way: Working out your net capital loss Step 1. Add up the * capital losses you made during the income year. Also add up the * capital gains you made. Step 2. Subtract your * capital gains from your * capital losses. Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) You cannot deduct from your assessable income a * net capital loss for any income year. Note: However, it can be applied against your capital gains for a later income year: see section 102-5 and subsection 102-15(3). INCOME TAX ASSESSMENT ACT 1997 - SECT 102.15 How to apply net capital losses (1) In working out if you have a * net capital gain, your * net capital losses are applied in the order in which you made them. (2) A * net capital loss can be applied only to the extent that it has not already been applied. (3) To the extent that a * net capital loss cannot be applied in an income year, it can be carried forward to a later income year. Example: You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400. You have available net capital losses of $300 (for last year) and $200 (for the year before that). The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200. Note: For applying a net capital loss for the 1997-98 income year or an earlier income year: see section 102-15 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.20 Ways you can make a capital gain or a capital loss You can make a * capital gain or *capital loss if and only if a * CGT event happens. The gain or loss is made at the time of the event. Note 1: The full list of CGT events is in section 104-5. Note 2: The gain or loss may be affected by an exemption, or may be able to be rolled-over. For exemptions generally, see Division 118. For roll-overs, see Divisions 122, 123, 124 and 126. Note 3: You may make a capital gain or capital loss as a result of a CGT event happening to another entity: see subsections 115-215(3), 170-275(1) and 170-280(3). Note 4: You cannot make a capital loss from a CGT event that happens to your original interests during a trust restructuring period if you choose a roll-over under Subdivision 124-N. Note 5: The capital loss may be affected if the CGT asset was owned by a member of a demerger group just before a demerger: see section 125-170. Note 5: Under subsection 230-310(4) gains and losses are taken to arise from a CGT event in particular circumstances. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.22 Amounts of capital gains and losses Most * CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.23 CGT event still happens even if gain or loss disregarded A * CGT event still happens even if: (a) it does not result in a * capital gain or *capital loss; or (b) a capital gain or capital loss from the event is disregarded. Example: Lindy sells a car. Section 118-5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.25 Order of application of CGT events (1) Work out if a * CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation. (2) However, there are 3 exceptions: one for * CGT event J2, one for CGT event K5 and one for CGT event K12. (2A) If the circumstances that gave rise to * CGT event J2 constitute another CGT event, CGT event J2 applies in addition to the other event. Example: CGT event J2 happens because a replacement asset for a small business roll-over under Subdivision 152-E becomes your trading stock (in circumstances where CGT event K4 happens). Both CGT events apply. (2B) * CGT event K5 happens if CGT event A1, C2 or E8 happens. CGT event K5 applies in addition to the other event. (2C) If: (a) * CGT events happen for which you make *capital gains or *capital losses; and (b) the capital gains or losses are taken into account in working out a * foreign hybrid net capital loss amount; and (c) the foreign hybrid net capital loss amount is itself taken into account in determining that * CGT event K12 happens; CGT event K12 applies in addition to the other CGT events. (3) If no * CGT event (except *CGT events D1 and H2) happens: (a) work out if CGT event D1 happens and use that event if it does; and (b) if it does not, work out if CGT event H2 happens and use that event if it does. Note: The full list of CGT events is in section 104-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 102.30 Exceptions and modifications Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Special rules affecting capital gains and capital losses Item For this kind of entity: There are these special rules: See: 1 All entities You can subtract capital losses from collectables only from your capital gains from collectables. section 108-10 2 All entities Disregard capital losses you make from personal use assets. section 108-20 2AA Beneficiary of trust that makes a capital gain taken into account in working out the net income of the trust The beneficiary is treated as having an extra capital gain corresponding to the beneficiary's share of the capital gain (taking into account adjustments in respect of the CGT discount and small business concessions). Subdivision 115-C 3 All entities If any of your commercial debts have been forgiven in the income year, your net capital losses (including net capital losses from collectables) may be reduced. sections 245-130 and 245-135 4 A company If it has a change of ownership or control during the income year, and has not satisfied the same business test, it works out its net capital gain and net capital loss in a special way. Subdivision 165-CB 5 A company It cannot apply a net capital loss unless: • the same people owned the company during the loss year, the income year and any intervening year; and • no person controlled the company's voting power at any time during the income year who did not also control it during the whole of the loss year and any intervening year; or the company has satisfied the same business test. Subdivision 165-CA 6 A company If one or more of these things happen: • a capital gain or loss is injected into it; • a tax benefit is obtained from its available net capital losses or current year capital losses; • a tax benefit is obtained because of its available capital gains; the Commissioner can disallow its net capital losses or current year capital losses, and it may have to work out its net capital loss in a special way. Division 175 7 A company A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in the income year of the transfer. (Both companies must be members of the same wholly-owned group.) Subdivision 170-B 7A The head company of a consolidated group or a MEC group The head company of a consolidated group or a MEC group must apply the capital loss from CGT event L1 over at least 5 income years section 104-500 8 A PDF If it is a PDF at the end of an income year for which it has a net capital loss, it can apply the loss in a later income year only if it is a PDF throughout the last day of the later income year. section 195-25 9 A PDF If it becomes a PDF during an income year, it works out its net capital gain and net capital loss for the income year in a special way. section 195-35 10 Body that has ceased to be an STB Net capital losses made before cessation disregarded. Special rules apply in cessation year where net capital gain before cessation and net capital loss after cessation. section 24AX 10A All entities Division 316 contains special rules affecting capital gains and capital losses connected with demutualisation of friendly society health or life insurers. Division 316 11 A life insurance company Division 320 contains special rules that apply to capital gains and capital losses Division 320 12 A company The capital gain or capital loss a company makes from a CGT event that happened to a share in a company that is a foreign resident may be reduced. Subdivision 768-G 13 A PDF Sections 102-5 and 102-10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. Subdivision C of Division 10E of Part III 14 A CFC In calculating the CFC's attributable income, pre-1 July 1990 capital losses are disregarded. section 409 Guide to Division 103 INCOME TAX ASSESSMENT ACT 1997 - SECT 103.1 What this Division is about This Division sets out some general rules that apply to the provisions dealing with capital gains and capital losses. Table of sections Operative provisions 103-5 Giving property as part of a transaction 103-10 Entitlement to receive money or property 103-15 Requirement to pay money or give property 103-25 Choices 103-30 Reduction of cost base etc. by net input tax credits Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 103.5 Giving property as part of a transaction There are a number of provisions in this Part and Part 3-3 that say that a payment, cost or expenditure can include giving property. To the extent that such a provision does say that a payment, cost or expenditure can include giving property, use the * market value of the property in working out the amount of the payment, cost or expenditure. INCOME TAX ASSESSMENT ACT 1997 - SECT 103.10 Entitlement to receive money or property (1) This Part and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct. (2) Those Parts apply to you as if you are entitled to receive money or other property: (a) if you are entitled to have it so applied; or (b) if: (i) you will not receive it until a later time; or (ii) the money is payable by instalments. INCOME TAX ASSESSMENT ACT 1997 - SECT 103.15 Requirement to pay money or give property This Part and Part 3-3 apply to you as if you are required to pay money or give other property even if: (a) you do not have to pay or give it until a later time; or (b) the money is payable by instalments. INCOME TAX ASSESSMENT ACT 1997 - SECT 103.25 Choices (1) A choice you can make under this Part or Part 3-3 must be made: (a) by the day you lodge your * income tax return for the income year in which the relevant * CGT event happened; or (b) within a further time allowed by the Commissioner. (2) The way you (and any other entity making the choice) prepare your * income tax returns is sufficient evidence of the making of the choice. (3) However, there are some exceptions: (aa) subsection 115-230(3) (relating to assessment of * capital gains of resident testamentary trusts) requires a trustee to make a choice by the time specified in subsection 115-230(5); and (a) subsections 124-380(7) and 124-465(5) (relating to replacement asset roll-overs) require a company to make the choice at the earlier time specified in those subsections; and (b) subsections 152-315(4) and (5) (relating to the small business retirement exemption) require a choice to be made in writing. Note: This section is modified in calculating the attributable income of a CFC: see section 421 of the Income Tax Assessment Act 1936. INCOME TAX ASSESSMENT ACT 1997 - SECT 103.30 Reduction of cost base etc. by net input tax credits Reduce the * cost base and *reduced cost base of a *CGT asset, and any other amount that could be involved in the calculation of an entity's * capital gain or *capital loss, by the amount of any * net input tax credit of the entity in relation to that amount. Example: The other amount could be expenditure in the case of some CGT events (see, for example, CGT event D1). Note: Subsection 116-20(5) deals with the effect of net GST on supplies for the purposes of capital proceeds. Table of Subdivisions Guide to Division 104 104-A Disposals 104-B Use and enjoyment before title passes 104-C End of a CGT asset 104-D Bringing into existence a CGT asset 104-E Trusts 104-F Leases 104-G Shares 104-H Special capital receipts 104-I Australian residency ends 104-J CGT events relating to roll-overs 104-K Other CGT events 104-L Consolidated groups and MEC groups Guide to Division 104 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.1 What this Division is about This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.5 Summary of the CGT events CGT events Event number and description Time of event is: Capital gain is: Capital loss is: A1 Disposal of a CGT asset [See section 104-10] when disposal contract is entered into or, if none, when entity stops being asset's owner capital proceeds from disposal less asset's cost base asset's reduced cost base less capital proceeds B1 Use and enjoyment before title passes [See section 104-15] when use of CGT asset passes capital proceeds less asset's cost base asset's reduced cost base less capital proceeds C1 Loss or destruction of a CGT asset [See section 104-20] when compensation is first received or, if none, when loss discovered or destruction occurred capital proceeds less asset's cost base asset's reduced cost base less capital proceeds C2 Cancellation, surrender and similar endings [See section 104-25] when contract ending asset is entered into or, if none, when asset ends capital proceeds from ending less asset's cost base asset's reduced cost base less capital proceeds C3 End of option to acquire shares etc. [See section 104-30] when option ends capital proceeds from granting option less expenditure in granting it expenditure in granting option less capital proceeds D1 Creating contractual or other rights [See section 104-35] when contract is entered into or right is created capital proceeds from creating right less incidental costs of creating it incidental costs of creating right less capital proceeds D2 Granting an option [See section 104-40] when option is granted capital proceeds from grant less expenditure to grant it expenditure to grant option less capital proceeds D3 Granting a right to income from mining [See section 104-45] when contract is entered into or, if none, when right is granted capital proceeds from grant of right less expenditure to grant it expenditure to grant right less capital proceeds D4 Entering into a conservation covenant [See section 104-47] when covenant is entered into capital proceeds from covenant less cost base apportioned to the covenant reduced cost base apportioned to the covenant less capital proceeds from covenant E1 Creating a trust over a CGT asset [See section 104-55] when trust is created capital proceeds from creating trust less asset's cost base asset's reduced cost base less capital proceeds E2 Transferring a CGT asset to a trust [See section 104-60] when asset transferred capital proceeds from transfer less asset's cost base asset's reduced cost base less capital proceeds E3 Converting a trust to a unit trust [See section 104-65] when trust is converted market value of asset at that time less its cost base asset's reduced cost base less that market value E4 Capital payment for trust interest [See section 104-70] when trustee makes payment non-assessable part of the payment less cost base of the trust interest no capital loss E5 Beneficiary becoming entitled to a trust asset [See section 104-75] when beneficiary becomes absolutely entitled for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's capital interest for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's capital interest less that market value E6 Disposal to beneficiary to end income right [See section 104-80] the time of the disposal for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's right to income for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's right to income less that market value E7 Disposal to beneficiary to end capital interest [See section 104-85] the time of the disposal for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's capital interest for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's capital interest less that market value E8 Disposal by beneficiary of capital interest [See section 104-90] when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset capital proceeds less appropriate proportion of the trust's net assets appropriate proportion of the trust's net assets less capital proceeds E9 Creating a trust over future property [See section 104-105] when entity makes agreement market value of the property (as if it existed when agreement made) less incidental costs in making agreement incidental costs in making agreement less market value of the property (as if it existed when agreement made) F1 Granting a lease [See section 104-110] for grant of lease--when entity enters into lease contract or, if none, at start of lease; for lease renewal or extension--at start of renewal or extension capital proceeds less expenditure on grant, renewal or extension expenditure on grant, renewal or extension less capital proceeds F2 Granting a long term lease [See section 104-115] for grant of lease--when lessor grants lease; for lease renewal or extension--at start of renewal or extension capital proceeds from grant, renewal or extension less cost base of leased property reduced cost base of leased property less capital proceeds from grant, renewal or extension F3 Lessor pays lessee to get lease changed [See section 104-120] when lease term is varied or waived no capital gain amount of expenditure to get lessee's agreement F4 Lessee receives payment for changing lease [See section 104-125] when lease term is varied or waived capital proceeds less cost base of lease no capital loss F5 Lessor receives payment for changing lease [See section 104-130] when lease term is varied or waived capital proceeds less expenditure in relation to variation or waiver expenditure in relation to variation or waiver less capital proceeds G1 Capital payment for shares [See section 104-135] when company pays non-assessable amount payment less cost base of shares no capital loss G3 Liquidator or administrator declares shares or financial instruments worthless [See section 104-145] when declaration was made no capital gain shares' or financial instruments' reduced cost base H1 Forfeiture of a deposit [See section 104-150] when deposit is forfeited deposit less expenditure in connection with prospective sale expenditure in connection with prospective sale less deposit H2 Receipt for event relating to a CGT asset [See section 104-155] when act, transaction or event occurred capital proceeds less incidental costs incidental costs less capital proceeds I1 Individual or company stops being an Australian resident [See section 104-160] when individual or company stops being Australian resident for each CGT asset the person owns, its market value less its cost base for each CGT asset the person owns, its reduced cost base less its market value I2 Trust stops being a resident trust [See section 104-170] when trust ceases to be resident trust for CGT purposes for each CGT asset the trustee owns, its market value of asset less its cost base for each CGT asset the trustee owns, its reduced cost base less its market value J1 Company stops being member of wholly-owned group after roll-over [See section 104-175] when the company stops market value of asset at time of event less its cost base reduced cost base of asset less that market value J2 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E [See section 104-185] when the change happens the amount mentioned in subsection 104-185(5) no capital loss J4 Trust fails to cease to exist after a roll-over under Subdivision 124-N [See section 104-195] when the failure happens market value of asset less asset's cost base reduced cost base of asset less asset's market value J5 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E [See section 104-197] at the end of the replacement asset period the amount of the capital gain that you disregarded under Subdivision 152-E no capital loss J6 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain [See section 104-198] at the end of the replacement asset period the amount mentioned in subsection 104-198(3) no capital loss K2 Bankrupt pays amount in relation to debt [See section 104-210] when payment is made no capital gain so much of payment as relates to denied part of a net capital loss K3 Asset passing to tax-advantaged entity [See section 104-215] when individual dies market value of asset at death less its cost base reduced cost base of asset less that market value K4 CGT asset starts being trading stock [See section 104-220] when asset starts being trading stock market value of asset less its cost base reduced cost base of asset less its market value K5 Special capital loss from collectable that has fallen in market value [See section 104-225] when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable no capital gain market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8 K6 Pre-CGT shares or trust interest [See section 104-230] when another CGT event involving the shares or interest happens capital proceeds from the shares or trust interest (so far as attributable to post-CGT assets owned by the company or trust) less the assets' cost bases no capital loss K7 Balancing adjustment occurs for a depreciating asset that you used for purposes other than taxable purposes [See section 104-235] When balancing adjustment event occurs Termination value less cost times fraction Cost less termination value times fraction K8 Direct value shifts affecting your equity or loan interests in a company or trust [See section 104-250 and Division 725] the decrease time for the interests the gain worked out under section 725-365 no capital loss K9 Entitlement to receive payment of a carried interest [See section 104-255] when you become entitled to receive payment capital proceeds from entitlement no capital loss K10 You make a forex realisation gain covered by item 1 of the table in subsection 775-70(1) [See section 104-260] when the forex realisation event happens the forex realisation gain no capital loss K11 You make a forex realisation loss covered by item 1 of the table in subsection 775-75(1) [See section 104-265] when the forex realisation event happens no capital gain the forex realisation loss K12 Foreign hybrid loss exposure adjustment [See section 104-270] just before the end of the income year no capital gain the amount stated in subsection 104-270(3) L1 Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group [See section 104-500] Just after entity becomes subsidiary member no capital gain amount of reduction L2 Amount remaining after step 3A etc. of joining allocable cost amount is negative [See section 104-505] Just after entity becomes subsidiary member amount remaining no capital loss L3 Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount [See section 104-510] Just after entity becomes subsidiary member amount of excess no capital loss L4 No reset cost base assets against which to apply excess of net allocable cost amount on joining [See section 104-515] Just after entity becomes subsidiary member no capital gain amount of excess L5 Amount remaining after step 4 of leaving allocable cost amount is negative [See section 104-520] When entity ceases to be subsidiary member amount remaining no capital loss L6 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 [See section 104-525] start of the income year when the Commissioner becomes aware of the errors the net overstated amount resulting from the errors, or a portion of that amount the net understated amount resulting from the errors, or a portion of that amount L8 Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated [See section 104-535] Just after entity becomes subsidiary member no capital gain amount of reduction that cannot be allocated Note: Subsection 230-310(4) (which deals with hedging financial arrangements) provides that in certain circumstances a CGT event is taken to have occurred in relation to a hedging financial arrangement at the same time as a CGT event actually occurs in relation to a hedged item covered by the arrangement. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.10 Disposal of a CGT asset: CGT event A1 (1) CGT event A1 happens if you * dispose of a * CGT asset. (2) You dispose of a * CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee. (3) The time of the event is: (a) when you enter into the contract for the * disposal; or (b) if there is no contract--when the change of ownership occurs. Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000. The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place). Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs. Note 2: If the asset was compulsorily acquired from you: see subsection (6). (4) You make a capital gain if the * capital proceeds from the disposal are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Exceptions (5) A * capital gain or *capital loss you make is disregarded if: (a) you * acquired the asset before 20 September 1985; or (b) for a lease that you granted: (i) it was granted before that day; or (ii) if it has been renewed or extended--the start of the last renewal or extension occurred before that day. Note 1: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6. Note 2: A capital gain or loss you make because you assign a right under or in relation to a general insurance policy you held with an HIH company to the Commonwealth, the trustee of the HIH Trust or a prescribed entity is also disregarded: see section 322-15. Note 3: A capital gain or loss made by a demerging entity from CGT event A1 happening as a result of a demerger is also disregarded: see section 125-155. Note 4: A capital gain or loss you make because of section 16AI of the Banking Act 1959 is disregarded: see section 253-10 of this Act. Section 16AI of the Banking Act 1959: (a) reduces your right to be paid an amount by an ADI in connection with an account to the extent of your entitlement under Division 2AA of Part II of that Act to be paid an amount by APRA; and (b) provides that, to the extent of the reduction, the right becomes a right of APRA. Note 5: A capital gain or loss you make because, under section 62ZZL of the Insurance Act 1973, you dispose of a CGT asset consisting of your rights against a general insurance company to APRA is disregarded: see section 322-30 of this Act. Compulsory acquisition (6) If the asset was * acquired from you by an entity under a power of compulsory acquisition conferred by an * Australian law or a *foreign law, the time of the event is the earliest of: (a) when you received compensation from the entity; or (b) when the entity became the asset's owner; or (c) when the entity entered it under that power; or (d) when the entity took possession under that power. Note: You may be able to choose a roll-over if an asset is compulsorily acquired: see Subdivision 124-B. (7) CGT event A1 does not happen if the * disposal of the asset was done: (a) to provide or redeem a security; or (b) because of the vesting of the asset in a trustee under the Bankruptcy Act 1966 or under a similar * foreign law; or (c) because of the vesting of the asset in a liquidator of a company, or the holder of a similar office under a foreign law. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.15 Use and enjoyment before title passes: CGT event B1 (1) CGT event B1 happens if you enter into an agreement with another entity under which: (a) the right to the use and enjoyment of a * CGT asset you own passes to the other entity; and (b) title in the asset will or may pass to the other entity at or before the end of the agreement. Note: Division 240 provides for the inclusion of amounts under hire purchase agreements in assessable income. (2) The time of the event is when the other entity first obtains the use and enjoyment of the asset. (3) You make a capital gain if the * capital proceeds from the agreement are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Exceptions (4) A * capital gain or *capital loss you make is disregarded if: (a) title in the asset does not pass to the other entity at or before the end of the agreement; or (b) you * acquired the asset before 20 September 1985. Table of sections 104-20 Loss or destruction of a CGT asset: CGT event C1 104-25 Cancellation, surrender and similar endings: CGT event C2 104-30 End of option to acquire shares etc.: CGT event C3 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.20 Loss or destruction of a CGT asset: CGT event C1 (1) CGT event C1 happens if a * CGT asset you own is lost or destroyed. Note: This event can apply to part of a CGT asset: see section 108-5 (definition of CGT asset). (2) The time of the event is: (a) when you first receive compensation for the loss or destruction; or (b) if you receive no compensation--when the loss is discovered or the destruction occurred. (3) You make a capital gain if the * capital proceeds from the loss or destruction are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Exception (4) A * capital gain or *capital loss you make is disregarded if you * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.25 Cancellation, surrender and similar endings: CGT event C2 (1) CGT event C2 happens if your ownership of an intangible * CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited; or (e) if the asset is an option--being exercised; or (f) if the asset is a * convertible interest--being converted. (2) The time of the event is: (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract--when the asset ends. (3) You make a capital gain if the * capital proceeds from the ending are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Note: The capital proceeds referred to in this subsection are reduced if the gain or loss was for shares and an amount was taken into account as a capital gain for the shares under former section 160ZL of the Income Tax Assessment Act 1936 for the 1997-98 income year or an earlier income year: see section 104-25 of the Income Tax (Transitional Provisions) Act 1997. (4) A lease is taken to have expired even if it is extended or renewed. Exceptions (5) A * capital gain or *capital loss you make is disregarded if: (a) you * acquired the asset before 20 September 1985; or (b) for a lease that you granted: (i) it was granted before that day; or (ii) if it has been renewed or extended--the start of the last renewal or extension occurred before that day. Note 1: There are other exceptions if: * your lease expires and you did not use it mainly to produce assessable income: see section 118-40; or * you exercise rights to acquire shares or units: see section 130-40; or * you acquire shares or units by converting a convertible interest: see section 130-60; or * you exercise an option: see section 134-1. Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245-90. Note 3: A capital gain or loss a company makes because shares in its 100% subsidiary are cancelled (an example of CGT event C2) on the liquidation of the subsidiary may be reduced if there was a roll-over for a CGT asset under Subdivision 126-B: see section 126-85. Note 4: A capital gain on the repayment of certain debt given to an ultimate holding company is disregarded where an entity obtains a roll-over under Subdivision 124-M for interests acquired or cancelled: see section 124-784. Note 5: Cost base adjustments are made only under Subdivision 125-B if there is a roll-over under that Subdivision for CGT event C2 happening as a result of a demerger. Note 6: A capital gain or loss made by a demerging entity from CGT event C2 happening as a result of a demerger is also disregarded: see section 125-155. Note 7: A capital gain or loss you make from the meeting of your entitlement under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of the Banking Act 1959 or Part VC (Financial claims scheme for account-holders with insolvent general insurers) of the Insurance Act 1973 is disregarded: see sections 253-10 and 322-30 of this Act. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.30 End of option to acquire shares etc.: CGT event C3 (1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to * acquire a *CGT asset that is: (a) * shares in the company or units in the unit trust; or (b) * debentures of the company or unit trust; ends in one of these ways: (c) it is not exercised by the latest time for its exercise; (d) it is cancelled; (e) it is released or abandoned. (2) The time of the event is when the option ends. (3) The company or trustee makes a capital gain if the * capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income. Exception (5) A * capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985. Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936. Table of sections 104-35 Creating contractual or other rights: CGT event D1 104-40 Granting an option: CGT event D2 104-45 Granting a right to income from mining: CGT event D3 104-47 Conservation covenants: CGT event D4 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.35 Creating contractual or other rights: CGT event D1 (1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this. You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right. (2) The time of the event is when you enter into the contract or create the other right. (3) You make a capital gain if the * capital proceeds from creating the right are more than the * incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less. Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of: (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as * recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) CGT event D1 does not happen if: (a) you created the right by borrowing money or obtaining credit from another entity; or (b) the right requires you to do something that is another * CGT event that happens to you; or (c) a company issues or allots * equity interests or * non-equity shares in the company; or (d) the trustee of a unit trust issues units in the trust; or (e) a company grants an option to acquire equity interests, non-equity shares or * debentures in the company; or (f) the trustee of a unit trust grants an option to acquire units or debentures in the trust. Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that CGT event D1 does not happen. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.40 Granting an option: CGT event D2 (1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted. Note: Some options are not covered: see subsections (6) and (7). (2) The time of the event is when you grant, renew or extend the option. (3) You make a capital gain if the * capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) A * capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the option is exercised. Note 1: Section 134-1 sets out the consequences of an option being exercised. Note 2: A capital gain or capital loss you made for the 1997-98 income year or an earlier income year under former Part IIIA of the Income Tax Assessment Act 1936 is also disregarded where the option is exercised in the 1998-99 income year or a later one: see section 104-40 of the Income Tax (Transitional Provisions) Act 1997. (6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to * acquire a *CGT asset that is: (a) * shares in the company or units in the unit trust; or (b) debentures of the company or unit trust. Note: Section 104-30 deals with this situation. (7) Nor does it apply to an option relating to a * personal use asset or a * collectable. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.45 Granting a right to income from mining: CGT event D3 (1) CGT event D3 happens if you own a * prospecting entitlement or * mining entitlement, or an interest in one, and you grant another entity a right to receive * ordinary income or * statutory income from operations permitted to be carried on by the entitlement. Note: If this event applies, there is no disposal of the entitlement. (2) The time of the event is: (a) when you enter into the contract with the other entity; or (b) if there is no contract--when you grant the right to receive * ordinary income or *statutory income. (3) You make a capital gain if the * capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.47 Conservation covenants: CGT event D4 (1) CGT event D4 happens if you enter into a * conservation covenant over land you own. (2) The time of the event is when you enter into the covenant. (3) You make a * capital gain if the *capital proceeds from entering into the covenant are more than that part of the * cost base of the land that is apportioned to the covenant. You make a * capital loss if those capital proceeds are less than the part of the * reduced cost base of the land that is apportioned to the covenant. Note: The capital proceeds from entering into the covenant are modified if you do not receive anything for entering into the covenant: see section 116-105. (4) The part of the * cost base of the land that is apportioned to the covenant is worked out in this way: The part of the * reduced cost base of the land that is apportioned to the covenant is worked out similarly. (5) The * cost base and *reduced cost base of the land are reduced by the part of the cost base or reduced cost base of the land that is apportioned to the covenant. Example: Lisa receives $10,000 for entering into a conservation covenant that covers 15% of the land she owns. Lisa uses the following figures in calculating the cost base of the land that is apportioned to the covenant: The cost base of the entire land is $200,000. The market value of the entire land before entering into the covenant is $300,000, and its market value after entering into the covenant is $285,000. Lisa calculates the cost base of the land that is apportioned to the covenant to be: She reduces the cost base of the land by the part that is apportioned to the covenant: Exceptions (6) * CGT event D4 does not happen if: (a) you did not receive any * capital proceeds for entering into the covenant; and (b) you cannot deduct an amount under Division 31 for entering into the covenant. Note: In this case, CGT event D1 will apply. (7) A * capital gain or *capital loss you make is disregarded if you * acquired the land before 20 September 1985. Table of sections 104-55 Creating a trust over a CGT asset: CGT event E1 104-60 Transferring a CGT asset to a trust: CGT event E2 104-65 Converting a trust to a unit trust: CGT event E3 104-70 Capital payment for trust interest: CGT event E4 104-71 Adjustment of non-assessable part 104-72 Reducing your capital gain under CGT event E4 if you are a trustee 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 104-80 Disposal to beneficiary to end income right: CGT event E6 104-85 Disposal to beneficiary to end capital interest: CGT event E7 104-90 Disposal by beneficiary of capital interest: CGT event E8 104-95 Making a capital gain 104-100 Making a capital loss 104-105 Creating a trust over future property: CGT event E9 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.55 Creating a trust over a CGT asset: CGT event E1 (1) CGT event E1 happens if you create a trust over a * CGT asset by declaration or settlement. Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event E1 will not happen merely because of a change in the trustee. (2) The time of the event is when the trust over the asset is created. (3) You make a capital gain if the * capital proceeds from the creation are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Cost base rule (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's * cost base and *reduced cost base in your hands is its * market value when the trust is created. Exceptions (5) CGT event E1 does not happen if you are the sole beneficiary of the trust and: (a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (b) the trust is not a unit trust. (6) A * capital gain or *capital loss you make is disregarded if you * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.60 Transferring a CGT asset to a trust: CGT event E2 (1) CGT event E2 happens if you transfer a * CGT asset to an existing trust. Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event E2 will not happen merely because of a change in the trustee. (2) The time of the event is when the asset is transferred. (3) You make a capital gain if the * capital proceeds from the transfer are more than the asset's * cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's * cost base and *reduced cost base in your hands is its * market value when the asset is transferred. Exceptions (5) CGT event E2 does not happen if you are the sole beneficiary of the trust and: (a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (b) the trust is not a unit trust. (6) A * capital gain or *capital loss you make is disregarded if you * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.65 Converting a trust to a unit trust: CGT event E3 (1) CGT event E3 happens if: (a) a trust (that is not a unit trust) over a * CGT asset is converted to a unit trust; and (b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under). (2) The time of the event is when the trust is converted. (3) The beneficiary makes a capital gain if the * market value of the asset (when the trust is converted) is more than the asset's * cost base. The beneficiary makes a capital loss if that market value is less than the asset's * reduced cost base. Exception (4) A * capital gain or *capital loss the beneficiary makes is disregarded if it * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.70 Capital payment for trust interest: CGT event E4 (1) CGT event E4 happens if: (a) the trustee of a trust makes a payment to you in respect of your unit or your interest in the trust (except for * CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and (b) some or all of the payment (the non-assessable part) is not included in your assessable income. To avoid doubt, in applying paragraph (b) to work out what part of the payment is included in your assessable income, disregard your share of the trust's net income that is subject to the rules in subsection 115-215(3). Note 1: Subsections 104-71(1) (tax-exempted amounts), 104-71(3) (tax-free amounts) and 104-71(4) (CGT concession amounts) can affect the calculation of the non-assessable part. Note 2: The non-assessable part includes amounts (tax-deferred amounts) associated with the small business 50% reduction, frozen indexation, building allowance and accounting differences in income. Note 3: A payment made to you after you stop owning the unit or interest in the trust forms part of the capital proceeds for the CGT event that happened when you stopped owning it. (2) The payment can include giving property (see section 103-5). (3) The time of the event is: (a) just before the end of the income year in which the trustee makes the payment; or (b) if another * CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year--just before the time of that other CGT event. (4) You make a capital gain if the sum of the amounts of the non-assessable parts of the payments made in the income year made by the trustee in respect of the unit or interest is more than its * cost base. Note: You cannot make a capital loss. (5) If you make a * capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil. Note: A capital gain under former section 160ZM of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see subsection 104-70(3) of the Income Tax (Transitional Provisions) Act 1997. (6) However, if that sum is not more than the * cost base: (a) the cost base is reduced by that sum; and (b) the * reduced cost base is reduced by that sum (without the adjustment in subsection 104-71(3)). Example: Mandy owns units in a unit trust that she bought on 1 July 1998 for $10 each. During the 1999-2000 income year the trustee makes 4 non-assessable payments of $0.50 per unit. If at the end of the income year Mandy's cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000-01 year for more than their cost base at that time, she will make a capital gain equal to the difference. Note: Cost base adjustments are made only under Subdivision 125-B if there is a roll-over under that Subdivision for CGT event E4 happening as a result of a demerger. Exceptions (7) A * capital gain you make from *CGT event E4 is disregarded if you * acquired the * CGT asset that is the unit or interest before 20 September 1985. (8) CGT event E4 does not happen to the extent that the payment is reasonably attributable to a * LIC capital gain. (9) CGT event E4 does not happen for a payment made to a foreign resident to the extent that the payment is reasonably attributable to * ordinary income or *statutory income from sources other than an *Australian source. However, this exception does not apply if the trust is a * corporate unit trust or a * public trading trust. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.71 Adjustment of non-assessable part (1) In working out the non-assessable part referred to in section 104-70, disregard any part of the payment that is: (a) * non-assessable non-exempt income; or (c) paid from an amount that has been assessed to the trustee; or (d) paid from an amount that is * personal services income included in your assessable income, or another entity's assessable income, under section 86-15; or (e) repaid by you; or (f) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or (g) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount. The payment can include giving property (see section 103-5). (2) However, the non-assessable part is not reduced by any part of the payment that you can deduct. (3) The amount of the non-assessable part referred to in section 104-70 is adjusted to exclude any part of it that is attributable to: (a) an amount that is not included in the assessable income of an entity because of: (i) section 124ZM or 124ZN (which exempt income arising from * shares in a *PDF) of the Income Tax Assessment Act 1936; or (ii) section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or (b) proceeds from a * CGT event that happens in relation to * shares in a company that was a *PDF when that event happened. (4) The amount of the non-assessable part referred to in section 104-70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table. Adjustment of non-assessable part Item Entity Amount excluded 1 Any entity So much of the amount of a * discount capital gain excluded from the * net capital gain of the trust making the payment because of step 3 of the method statement in subsection 102-5(1) and that is reflected in the payment to the entity 2 Individual, company or trust that has a * capital loss or *net capital loss to reduce its * capital gain described in paragraph 115-215(3)(b) where the trust gain referred to in subsection 115-215(3) is reduced under Subdivision 152-C 1/2 of the amount of the capital loss or net capital loss 3 Individual or trust that has a * capital loss or *net capital loss to reduce its * capital gain described in paragraph 115-215(3)(c) 1/4 of the amount of the capital loss or net capital loss 4 Company that has a * capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: (a) that capital loss or net capital loss is more than 1/2 of the trust gain referred to in subsection 115-215(3); and (b) that trust gain is reduced by an amount (the reduction amount) under Subdivision 152-C The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount 5 * Complying superannuation entity that has a * capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(b) where: (a) that capital loss or net capital loss is more than 1/2 of the trust gain referred to in subsection 115-215(3); and (b) that trust gain is reduced under Subdivision 152-C 1/2 of the amount of the capital loss or net capital loss 6 * Complying superannuation entity that has a * capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: (a) that capital loss or net capital loss is more than 1/4 of the trust gain referred to in subsection 115-215(3); and (b) that trust gain is reduced by an amount (also the reduction amount) under Subdivision 152-C The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount 7 Any entity receiving the payment where the trust making the payment, or another trust that is part of the same * chain of trusts, has a * capital loss or * net capital loss to reduce its * capital gain described in subsection 115-215(3) The proportion of the capital loss or net capital loss reflected in the payment Example: Claude is paid $100 by the trustee of a unit trust. The trustee advises that the amount comprises $50 CGT discount, $25 small business 50% reduction and $25 net income from a capital gain made by the trust. In applying the rules in Subdivision 115-C of the Income Tax Assessment Act 1997, Claude reduces his capital gain of $100 by a $20 net capital loss from an earlier year. He then reduces the remaining $80 gain by $40 (CGT discount) and $20 (small business 50% reduction) leaving a net capital gain of $20. In applying the rules in CGT event E4, the $100 payment is reduced by $25 (being the amount assessed under section 97 of the Income Tax Assessment Act 1936). It is further reduced by $50 under item 1 of the table and $5 under item 3. Claude's non-assessable part is $20. Effectively, CGT event E4 applies to the $20 small business 50% reduction allowed to Claude in applying Subdivision 115-C of the Income Tax Assessment Act 1997. Note 1: Step 3 of the method statement in subsection 102-5(1) (see table item 1) reduces by 50% the trust's discount capital gains remaining after applying capital losses and earlier net capital losses. That 50% is excluded from the trust's net capital gain. Note 2: Subdivision 152-C (small business 50% reduction--see table items 2, 3, 4, 5, 6 and 7) reduces by 50% the trust's capital gains or discount capital gains remaining after applying step 3 of the method statement in subsection 102-5(1). That 50% is also excluded from the trust's net capital gain. Note 3: Paragraph 115-215(3)(b) or (c) (see table items 2, 3, 4, 5 and 6) treats a beneficiary as having an extra capital gain if an amount of the trust's net income that is included in the beneficiary's assessable income is attributable to trust gains that were reduced by step 3 of the method statement in subsection 102-5(1) and/or the small business 50% reduction. (5) A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts: (a) the trustee of the trust owns units or interests in another of the trusts; or (b) the trustee of another of the trusts owns units or interests in the trust. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.72 Reducing your capital gain under CGT event E4 if you are a trustee (1) A * capital gain you make under subsection 104-70(4) is reduced if: (a) you are the trustee of another trust that is a * fixed trust and is not a *complying superannuation entity; and (b) you are taken to have a * capital gain under paragraph 115-215(3)(b) or (c) (your notional gain) in respect of a corresponding trust gain (the trust gain); and (c) some or all (the attributable amount) of the total of the non-assessable parts referred to in subsection 104-70(4) is attributable to proceeds from the trust gain. (2) The * capital gain is reduced (but not below 0) by the lesser of: (a) your notional gain; and (b) the attributable amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.75 Beneficiary becoming entitled to a trust asset: CGT event E5 (1) CGT event E5 happens if a beneficiary becomes absolutely entitled to a * CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under). Note: Division 128 deals with the effect of death. (2) The time of the event is when the beneficiary becomes absolutely entitled to the asset. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the * market value of the asset (at the time of the event) is more than its * cost base. The trustee makes a capital loss if that market value is less than the asset's * reduced cost base. Exception for trustee (4) A * capital gain or *capital loss the trustee makes is disregarded if it * acquired the asset before 20 September 1985. Note: There is also an exception for employee share trusts: see section 130-80. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the * market value of the asset (at the time of the event) is more than the * cost base of the beneficiary's interest in the trust capital to the extent it relates to the asset. The beneficiary makes a capital loss if that market value is less than the * reduced cost base of that beneficiary's interest in the trust capital to the extent it relates to the asset. Exceptions for beneficiary (6) A * capital gain or *capital loss the beneficiary makes is disregarded if: (a) the beneficiary * acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) the beneficiary acquired it before 20 September 1985; or (c) all or part of the capital gain or capital loss the trustee makes from the * CGT event is disregarded under Subdivision 118-B (about main residence). Expenditure can include giving property: see section 103-5. Note 1: For provisions affecting the application of Subdivision 118-B to the trustee, see sections 118-215 to 118-230. Note 2: There are also exceptions for employee share trusts: see sections 130-80 and 130-90. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.80 Disposal to beneficiary to end income right: CGT event E6 (1) CGT event E6 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) * disposes of a * CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive * ordinary income or *statutory income from the trust. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the * market value of the asset (at the time of the disposal) is more than its * cost base. It makes a capital loss if that market value is less than the asset's * reduced cost base. Exception for trustee (4) A * capital gain or *capital loss the trustee makes is disregarded if it * acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the * market value of the asset (at the time of the disposal) is more than the * cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the * reduced cost base of the right or part. Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section 112-20. Exception for beneficiary (6) A * capital gain or *capital loss the beneficiary makes is disregarded if it * acquired the * CGT asset that is the right before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.85 Disposal to beneficiary to end capital interest: CGT event E7 (1) CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) * disposes of a * CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the * market value of the asset (at the time of the disposal) is more than its * cost base. It makes a capital loss if that market value is less than the asset's * reduced cost base. Exception for trustee (4) A * capital gain or *capital loss the trustee makes is disregarded if it * acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the * market value of the asset (at the time of the disposal) is more than the * cost base of the interest, or the part of it, being satisfied. The beneficiary makes a capital loss if that market value is less than the * reduced cost base of that interest or part. Exceptions for beneficiary (6) A * capital gain or *capital loss the beneficiary makes is disregarded if: (a) the beneficiary * acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) the beneficiary acquired it before 20 September 1985; or (c) all or part of the capital gain or capital loss the trustee makes from the * CGT event is disregarded under Subdivision 118-B (about main residence). Expenditure can include giving property: see section 103-5. Note 1: For provisions affecting the application of Subdivision 118-B to the trustee, see sections 118-215 to 118-230. Note 2: There is also an exception for employee share trusts: see section 130-90. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.90 Disposal by beneficiary of capital interest: CGT event E8 (1) CGT event E8 happens if: (a) you are the beneficiary under a trust (except a unit trust or a trust to which Division 128 applies); and (b) you did not give any money or property to * acquire the * CGT asset that is your interest in the trust capital and you did not acquire it by assignment; and (c) you * dispose of the interest, or part of it (but not to the trustee). Note: Division 128 deals with the effect of death. (2) The time of the event is: (a) when you enter into the contract for the * disposal; or (b) if there is no contract--when you stop owning the interest or part. Note 1: You work out if you have made a capital gain or capital loss under sections 104-95 and 104-100. Note 2: There is a special indexation rule for this event: see section 114-10. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.95 Making a capital gain You are the only beneficiary (1) If you are the only beneficiary with an interest in the trust capital and you * dispose of that interest, you work out if you have made a * capital gain in this way: Working out your capital gain Step 1. Work out the * capital proceeds from the * disposal. Step 2. Work out the * net asset amount. Step 3. If the Step 1 amount is greater, you make a capital gain equal to the difference. (2) The net asset amount is worked out in this way: Working out the net asset amount Step 1. Work out the total of the * cost bases (at the time of the disposal) of the * CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time. Step 2. Work out the total of the * market values (at the time of the disposal) of the * CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time. Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal. Step 4. Add up the Step 1, 2 and 3 amounts. Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal. Step 6. The result is the net asset amount. Example: You dispose of your interest in the trust capital for $10,000 (the capital proceeds). The total of the cost bases of the CGT assets that the trustee acquired on or after 20 September 1985 is $6,000. The total of the market values of the CGT assets that the trustee acquired before 20 September 1985 is $2,500. There is $1,000 in the trust. The trust liabilities are $500. The net asset amount is: You make a capital gain of: (3) If you * dispose of only part of that interest, any * capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: Example: To vary the example in subsection (2), suppose you dispose of 50% of your interest for $5,000 (the capital proceeds). The Step 2 amount becomes: You make a capital gain of: There is more than one beneficiary (4) If you are not the only beneficiary with an interest in the trust capital and you * dispose of your interest, any * capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: Example: To vary the example in subsection (2), suppose you have a 20% interest in the trust capital and you dispose of it for $4,000 (the capital proceeds). The Step 2 amount becomes: You make a capital gain of: (5) If you are not the only beneficiary with an interest in the trust capital and you * dispose of part of your interest, any * capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: Example: To vary the example in subsection (2), suppose you have a 50% interest in the trust capital. You dispose of 20% of it for $1,000 (the capital proceeds). The Step 2 amount becomes: You make a capital gain of: Exception (6) A * capital gain you make is disregarded if you * acquired the * CGT asset that is the interest in the trust capital before 20 September 1985. Note: You can make a gain if you dispose of an interest in a trust that you acquired before that day: see CGT event K6. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.100 Making a capital loss You are the only beneficiary (1) If you are the only beneficiary with an interest in the trust capital and you * dispose of that interest, you work out if you have made a * capital loss in this way: Working out your capital loss Step 1. Work out the * capital proceeds from the * disposal. Step 2. Work out the * reduced net asset amount. Step 3. If the Step 1 amount is less, you make a capital loss equal to the difference. (2) The reduced net asset amount is worked out in this way: Working out the reduced net asset amount Step 1. Work out the total of the * reduced cost bases (at the time of the disposal) of the * CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time. Step 2. Work out the total of the * market values (at the time of the disposal) of the * CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time. Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal. Step 4. Add up the Step 1, 2 and 3 amounts. Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal. Step 6. The result is the reduced net asset amount. (3) If you * dispose of only part of that interest, any * capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: There is more than one beneficiary (4) If you are not the only beneficiary with an interest in the trust capital and you * dispose of your interest, any * capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: (5) If you are not the only beneficiary with an interest in the trust capital and you * dispose of part of your interest, any * capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: Exception (6) A * capital loss you make is disregarded if you * acquired the * CGT asset that is the interest in the trust capital before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.105 Creating a trust over future property: CGT event E9 (1) CGT event E9 happens if: (a) you agree for consideration that when property comes into existence you will hold it on trust; and (b) at the time of the agreement, no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement. (2) The time of the event is when you made the agreement. (3) You make a capital gain if the * market value the property would have had if it had existed when you made the agreement is more than any * incidental costs you incurred that relate to the event. You make a capital loss if that market value is less. (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as * recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Table of sections 104-110 Granting a lease: CGT event F1 104-115 Granting a long-term lease: CGT event F2 104-120 Lessor pays lessee to get lease changed: CGT event F3 104-125 Lessee receives payment for changing lease: CGT event F4 104-130 Lessor receives payment for changing lease: CGT event F5 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.110 Granting a lease: CGT event F1 (1) CGT event F1 happens if a lessor grants, renews or extends a lease. Note 1: Other CGT events can apply to leases. An assignment of a lease is an example of CGT event A1. Note 2: There are special rules that apply to some lease transactions: see Division 132. (2) The time of the event is: (a) for the grant of a lease: (i) when the contract for the lease is entered into; or (ii) if there is no contract--at the start of the lease; or (b) for a renewal or extension--at the start of the renewal or extension. (3) The lessor makes a capital gain if the * capital proceeds from the grant, renewal or extension are more than the expenditure it incurred on the grant, renewal or extension. It makes a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exception (5) The lessor can choose to apply section 104-115 to certain long term leases. If it does so, this section does not apply. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.115 Granting a long-term lease: CGT event F2 (1) CGT event F2 happens if: (a) a lessor grants a lease over land (whether or not the lessor owns an estate in fee simple in the land), or renews or extends a lease over land; and (b) the lease, renewal or extension is for at least 50 years and: (i) at the time of the grant, renewal or extension, it was reasonable to expect that it would continue for at least 50 years; and (ii) the terms of the lease, renewal or extension as they apply to the lessee are substantially the same as those under which the lessor owned the land or held a lease of the land; and (c) the lessor chooses to apply this section instead of section 104-110. Note: Section 103-25 tells you when the choice must be made. (2) The time of the event is when the lessor grants the lease, or at the start of the renewal or extension, as appropriate. (3) The lessor makes a capital gain if the * capital proceeds from the event are more than the * cost base of the lessor's interest in the land. The lessor makes a capital loss if those capital proceeds are less than the * reduced cost base of that interest. Exceptions (4) A * capital gain or *capital loss the lessor makes is disregarded if: (a) it * acquired the *CGT asset that is the land, or the lease to the lessor was granted, before 20 September 1985; or (b) the lease to the lessor has been renewed or extended and the last renewal or extension started before that day. Note: For any later CGT event that happens to the land or the lessor's lease of it: see section 132-10. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.120 Lessor pays lessee to get lease changed: CGT event F3 (1) CGT event F3 happens if a lessor incurs expenditure in getting the lessee's agreement to vary or waive a term of the lease. The lessor makes a capital loss equal to the amount of expenditure it incurred. (The expenditure can include giving property: see section 103-5.) (2) The time of the event is when the term is varied or waived. Exception (3) However, this event does not apply to expenditure for a lease to which the lessor has chosen to apply section 104-115. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.125 Lessee receives payment for changing lease: CGT event F4 (1) CGT event F4 happens if a lessee receives a payment from the lessor for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5. (2) The time of the event is when the term is varied or waived. (3) The lessee makes a capital gain if the * capital proceeds from the event are more than the lease's * cost base (at the time of the event). If the lessee makes a * capital gain, the lease's cost base is also reduced to nil. Note: The lessee cannot make a capital loss. (4) On the other hand, if those * capital proceeds are less, the lease's * cost base is reduced by that amount at the time of the event. Example: On 1 January 1999 a lessee enters a lease. On 1 May 1999 the lessee agrees to waive a term. The lessor pays the lessee $1,000 for this. If the lease's cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500. On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this. If the lease's cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil. Exceptions (5) A * capital gain the lessee makes is disregarded if: (a) the lease was granted before 20 September 1985; or (b) for a lease that has been renewed or extended--the start of the last renewal or extension occurred before that day. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.130 Lessor receives payment for changing lease: CGT event F5 (1) CGT event F5 happens if a lessor receives a payment from the lessee for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5. (2) The time of the event is when the term is varied or waived. (3) The lessor makes a capital gain if the * capital proceeds from the event are more than the expenditure the lessor incurs in relation to the variation or waiver. The lessor makes a capital loss if those capital proceeds are less. Example: You own a shopping centre. The lessee of a shop in the centre pays you $10,000 for agreeing to change the terms of its lease. You incur expenses of $1,000 for a solicitor and $500 for a valuer. You make a capital gain of $8,500. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income. Exceptions (5) A * capital gain or *capital loss the lessor makes is disregarded if: (a) the lease was granted before 20 September 1985; or (b) for a lease that has been renewed or extended--the start of the last renewal or extension occurred before that day. Table of sections 104-135 Capital payment for shares: CGT event G1 104-145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.135 Capital payment for shares: CGT event G1 (1) CGT event G1 happens if: (a) a company makes a payment to you in respect of a * share you own in the company (except for * CGT event A1 or C2 happening in relation to the share); and (b) some or all of the payment (the non-assessable part) is not a * dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936; and (c) the payment is not included in your assessable income. The payment can include giving property: see section 103-5. (1A) In working out the non-assessable part, disregard any part of the payment that is: (aa) * non-assessable non-exempt income; or (a) repaid by you; or (b) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or (c) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount. The payment can include giving property: see section 103-5. (1B) However, the non-assessable part is not reduced by any part of the payment that you can deduct. (2) The time of the event is when the company makes the payment. (3) You make a capital gain if the amount of the non-assessable part is more than the * share's *cost base. If you make a * capital gain, the share's * cost base and * reduced cost base are reduced to nil. Note 1: You cannot make a capital loss. Note 2: A capital gain under former section 160ZL of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see section 104-135 of the Income Tax (Transitional Provisions) Act 1997. (4) However, if the amount of the non-assessable part is not more than the * share's *cost base, that cost base and its *reduced cost base are reduced by the amount of the non-assessable part. Note: Cost base adjustments are made only under Subdivision 125-B if there is a roll-over under that Subdivision for CGT event G1 happening as a result of a demerger. Exceptions (5) A * capital gain you make is disregarded if you * acquired the * CGT asset that is the * share before 20 September 1985. (6) You disregard a payment by a liquidator for the purposes of this section if the company ceases to exist within 18 months of the payment. Note: The payment will be part of your capital proceeds for CGT event C2 happening when the share ends. (7) You also disregard a payment that is * personal services income included in your assessable income, or another entity's assessable income, under section 86-15. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 (1) CGT event G3 happens if you own * shares in a company, or financial instruments issued by or created by or in relation to a company, and a liquidator or administrator of the company declares in writing that the liquidator or administrator has reasonable grounds to believe (as at the time of the declaration) that: (a) for shares--there is no likelihood that shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution for their shares; or (b) for financial instruments--the instruments, or a class of instruments that includes instruments of that kind, have no value or have only negligible value. (2) The time of the event is when the declaration was made. (3) Examples of financial instruments referred to in subsection (1) are: (a) * debentures, bonds or promissory notes issued by the company; and (b) loans to the company; and (c) futures contracts, forward contracts or currency swap contracts relating to the company; and (d) rights or options to acquire an asset referred to in a preceding paragraph of this subsection; and (e) rights or options to acquire * shares in the company. (4) You can choose to make a capital loss equal to the * reduced cost base of your *shares or financial instruments (as at the time of the declaration). (5) If you make the choice, the * cost base and *reduced cost base of the * shares or financial instruments are reduced to nil just after the declaration was made. Note: This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the shares or financial instruments. Exceptions (6) You cannot choose to make a * capital loss if: (a) you * acquired the shares or financial instruments before 20 September 1985; or (b) the shares or financial instruments were * revenue assets at the time when the declaration was made. (7) You cannot choose to make a * capital loss for a * share, or a right to acquire a beneficial interest in a share, if: (a) you acquired the beneficial interest (the ESS interest) in the share or right under an * employee share scheme; and (b) subsequent to an amount being included in your assessable income under Division 83A (about employee share schemes) in relation to the ESS interest, section 83A-310 (about forfeiture) applies in relation to ESS interest. Table of sections 104-150 Forfeiture of deposit: CGT event H1 104-155 Receipt for event relating to a CGT asset: CGT event H2 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.150 Forfeiture of deposit: CGT event H1 (1) CGT event H1 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed. The payment can include giving property: see section 103-5. Example: You decide to sell land. Before entering into a contract of sale, the prospective purchaser pays you a 2 month holding deposit of $1,000. The negotiations fail and the deposit is forfeited. (1A) The amount of the deposit is reduced by any part of the deposit that is: (a) repaid by you; or (b) compensation you paid that can reasonably be regarded as a repayment of all or part of the deposit. The payment can include giving property: see section 103-5. (1B) However, the deposit is not reduced by any part of the payment that you can deduct. (2) The time of the event is when the deposit is forfeited. (3) You make a capital gain if the deposit is more than the expenditure you incur in connection with the prospective sale or other transaction. You make a capital loss if the deposit is less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as * recoupment of it and that is not included in your assessable income. Example: To continue the example: if you gave a lawyer wine worth $400 in connection with the prospective sale, you make a capital gain of: INCOME TAX ASSESSMENT ACT 1997 - SECT 104.155 Receipt for event relating to a CGT asset: CGT event H2 (1) CGT event H2 happens if: (a) an act, transaction or event occurs in relation to a * CGT asset that you own; and (b) the act, transaction or event does not result in an adjustment being made to the asset's * cost base or *reduced cost base. Example: You own land on which you intend to construct a manufacturing facility. A business promotion organisation pays you $50,000 as an inducement to start construction early. No contractual rights or obligations are created by the arrangement. The payment is made because of an event (the inducement to start construction early) in relation to your land. Note: This event does not apply if any other CGT event applies: see section 102-25. (2) The time of the event is when the act, transaction or event occurs. (3) You make a capital gain if the * capital proceeds because of the * CGT event are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less. (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as * recoupment of them and that is not included in your assessable income. Exceptions (5) CGT event H2 does not happen if: (a) the act, transaction or event is the borrowing of money or the obtaining of credit from another entity; or (b) the act, transaction or event requires you to do something that is another * CGT event that happens to you; or (c) a company issues or allots * equity interests or * non-equity shares in the company; or (d) the trustee of a unit trust issues units in the trust; or (e) a company grants an option to acquire equity interests, non-equity shares or * debentures in the company; or (ea) a company grants an option to dispose of * shares in the company to the company; or (f) the trustee of a unit trust grants an option to acquire units or debentures in the trust; or (g) a company or a trust that is a member of a * demerger group issues new * ownership interests under a * demerger. Note: For demergers, see Division 125. Table of sections 104-160 Individual or company stops being an Australian resident: CGT event I1 104-165 Exception for individuals 104-170 Trust stops being a resident trust: CGT event I2 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.160 Individual or company stops being an Australian resident: CGT event I1 (1) CGT event I1 happens if you stop being an Australian resident. (2) The time of the event is when you stop being one. (3) You need to work out if you have made a * capital gain or a *capital loss for each * CGT asset that you owned just before the time of the event, except one that is * taxable Australian property: (a) covered by item 1 or 3 of the table in section 855-15; or (b) covered by item 4 of that table because it is an option or right to * acquire a *CGT asset covered by item 1 or 3 of that table. (4) You make a capital gain if the * market value of the asset (at the time of the event) is more than its * cost base. You make a capital loss if that market value is less than the asset's * reduced cost base. (4A) If the asset is an * indirect Australian real property interest, or an option or right to acquire such an interest, this Part and Part 3-3 apply to the asset as if the first element of the * cost base and *reduced cost base of the asset (just after the time of the event) were its * market value at the time of the event. (4B) Subsection (4A) does not apply if the * capital gain or *capital loss you make is disregarded under subsection (5) or (6), or subsection 104-165(2). Exceptions (5) A * capital gain or *capital loss you make is disregarded if you * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.165 Exception for individuals Choosing to disregard making a gain or loss (2) If you are an individual, you can choose to disregard making a * capital gain or a *capital loss from all *CGT assets covered by *CGT event I1. (3) If you do so choose, each of those assets is taken to be * taxable Australian property until the earlier of: (a) a * CGT event happening in relation to the asset, if the CGT event involves you ceasing to own the asset; (b) you again becoming an Australian resident. Note: If you are an individual who was in Australia on 6 April 2006, and you remain an Australian resident from that day until you stop being one, and you were an Australian resident for less than 5 years during the 10 years before you stopped being one, see section 104-166 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.170 Trust stops being a resident trust: CGT event I2 (1) CGT event I2 happens if a trust stops being a * resident trust for CGT purposes. (2) The time of the event is when the trust stops being one. (3) The trustee needs to work out if it has made a * capital gain or a * capital loss for each * CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event except one that is * taxable Australian property: (a) covered by item 1 or 3 of the table in section 855-15; or (b) covered by item 4 of that table because it is an option or right to * acquire a *CGT asset covered by item 1 or 3 of that table. (4) The trustee makes a capital gain if the * market value of the asset (at the time of the event) is more than the asset's * cost base. The trustee makes a capital loss if that market value is less than the asset's * reduced cost base. (4A) If the asset is an * indirect Australian real property interest, or an option or right to acquire such an interest, this Part and Part 3-3 apply to the asset as if the first element of the * cost base and *reduced cost base of the asset (just after the time of the event) were its * market value at the time of the event. (4B) Subsection (4A) does not apply if the * capital gain or *capital loss the trustee makes is disregarded under subsection (5). Exception (5) A * capital gain or *capital loss the trustee makes is disregarded if it * acquired the asset before 20 September 1985. Table of sections 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 104-180 Sub-group break-up 104-182 Consolidated group break-up 104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 104-190 Modifying or extending the replacement asset period 104-195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 104-197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 104-198 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 (1) CGT event J1 happens if: (a) there is a roll-over under Subdivision 126-B for a * CGT event (the roll-over event) that happens in relation to a * CGT asset (the roll-over asset) involving 2 companies that are members of the same * wholly-owned group; and (b) the company (the recipient company) that owns the roll-over asset just after the roll-over stops being a 100% subsidiary of a company in the group in the circumstances set out in subsection (2) or (3); and (c) at the time of the roll-over, the recipient company was a * 100% subsidiary of: (i) the other company involved in the roll-over event (the originating company); or (ii) another member of the same * wholly-owned group. Note: If the roll-over was under former section 160ZZO of the Income Tax Assessment Act 1936, CGT event J1 does not happen if there would not have been a deemed disposal and re-acquisition under that Act: see section 104-175 of the Income Tax (Transitional Provisions) Act 1997. (2) This condition applies if there has been only one roll-over within the * wholly-owned group under Subdivision 126-B involving the roll-over asset. The recipient company must stop, at a time (the break-up time) when it still owns the roll-over asset, being a * 100% subsidiary of a member of the group (the ultimate holding company) that is not a 100% subsidiary of any other member of the group at the time of the roll-over event. (3) This condition applies if the roll-over event was the last in a series of * CGT events involving the roll-over asset and there was a roll-over within the * wholly-owned group under Subdivision 126-B for all the events. The recipient company must stop, at a time (also the break-up time) when it still owns the roll-over asset, being a * 100% subsidiary of another member of the group (also the ultimate holding company) that was not a 100% subsidiary of any other member of the group at the time of the first of the events. (4) The time of the event is the break-up time. (5) The recipient company makes a capital gain if the roll-over asset's * market value (at the break-up time) is more than its * cost base. It makes a capital loss if that market value is less than its * reduced cost base. Exceptions (6) CGT event J1 does not happen if the conditions in section 104-180 or 104-182 are satisfied. (7) A * capital gain or *capital loss the recipient company makes is disregarded if the roll-over asset is taken to have been * acquired by it before 20 September 1985 under Subdivision 126-B (except where the roll-over asset has stopped being a * pre-CGT asset, for example, because of Division 149). Note: CGT event J1 does not happen to a demerged entity or a member of a demerger group if CGT event A1 or C2 happens to a demerging entity under a demerger: see section 125-160. Acquisition rule (8) The recipient company is taken to have * acquired the roll-over asset at the break-up time. Cost base adjustment (9) The first element of the recipient company's * cost base and * reduced cost base of the roll-over asset (just after the break-up time) is its * market value (at the break-up time). INCOME TAX ASSESSMENT ACT 1997 - SECT 104.180 Sub-group break-up (1) The condition in subsection (2) must have been satisfied at each time when there is a roll-over within the * wholly-owned group under Subdivision 126-B for a * CGT event happening in relation to the roll-over asset. (2) The originating company and the recipient company must have been members of a group of 2 or more companies (the sub-group) within the * wholly-owned group (excluding the ultimate holding company) for which one of these is satisfied: (a) if the sub-group consists of 2 companies, either the recipient company is a 100% subsidiary of the other company (the holding company), or the other company is a 100% subsidiary of the recipient company (also the holding company); (b) if the sub-group consists of 3 or more companies: (i) the recipient company is a 100% subsidiary of one of those other companies (also the holding company) and so are the other companies (except the holding company) in the sub-group; or (ii) each of the companies in the sub-group (except the recipient company) is a 100% subsidiary of the recipient company (also the holding company). (3) If the roll-over event was the last in a series of * CGT events involving the roll-over asset and there was a roll-over within the * wholly-owned group under Subdivision 126-B for all the events, each company that was the originating company or the recipient company for the purposes of that Subdivision for one of those roll-overs must have been members of the sub-group at the time of each of the roll-overs. (4) The conditions in subsection (5) or (6) must be satisfied just after the break-up time. (5) If the recipient company was the holding company of the sub-group, none of its * shares can be owned by: (a) the ultimate holding company; or (b) a company that is a * 100% subsidiary of the ultimate holding company just after the break-up time. (6) If the recipient company was not the holding company of the sub-group, no * shares in it or in the holding company can be owned by: (a) the ultimate holding company; or (b) a company that is a * 100% subsidiary of the ultimate holding company just after the break-up time. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.182 Consolidated group break-up * CGT event J1 does not happen if the recipient company ceases to be a * subsidiary member of a *consolidated group at the break-up time (whether or not it becomes a subsidiary member of another consolidated group at that time). INCOME TAX ASSESSMENT ACT 1997 - SECT 104.185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 (1) CGT event J2 happens if you choose a small business roll-over under Subdivision 152-E for a * CGT event that happens in relation to a * CGT asset in an income year and: (a) you * acquire a replacement asset (the replacement asset), or you incur * fourth element expenditure in relation to a CGT asset (also the replacement asset), or you do both, by the end of the period (the replacement asset period) starting one year before, and ending 2 years after, the last CGT event in the income year for which you obtain the roll-over; and (b) the replacement asset is your * active asset at the end of the replacement asset period; and (c) if the replacement asset is a * share in a company or an interest in a trust, at the end of the replacement asset period: (i) either you, or an entity * connected with you, is a * CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust have a * small business participation percentage in you of at least 90%; and (d) a change of a kind specified in subsection (2) or (3) happens after the end of the replacement asset period. Note 1: The replacement asset period may be modified or extended, see section 104-190. Note 2: There is an exception: see subsection (8). Note 3: There may be 2 or more replacement assets. Note 4: CGT event J2 can also happen in relation to a capital gain you rolled-over under Division 17A of former Part IIIA of the Income Tax Assessment Act 1936 or Division 123 of the Income Tax Assessment Act 1997 if the status of the replacement asset changes: see section 104-185 of the Income Tax (Transitional Provisions) Act 1997. (2) For any replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c), the change is: (a) the asset stops being your * active asset; or (b) the asset becomes your * trading stock; or (c) you make a testamentary gift of the asset under the Cultural Bequests Program; or (d) you start to use the asset solely to produce your * exempt income or * non-assessable non-exempt income. (3) In addition, for a * share in a company or an interest in a trust, the change is: (a) * CGT event G3 or I1 happens in relation to it; or (b) paragraph (1)(c) stops being satisfied. Note: The full list of CGT events is in section 104-5. (4) The time of the event is when the change happens. (5) You make a capital gain equal to: (a) if there is only one replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c)--the amount of the capital gain that you disregarded under Subdivision 152-E (the 152-E amount); or (b) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and a change of a kind specified in subsection (2) or (3) occurs for all of them--the 152-E amount; or (c) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and such a change occurs for one or more but not all of them--so much (if any) of the 152-E amount as exceeds the sum of the following: (i) the first element of the * cost base of each of those replacement assets * acquired; (ii) the * incidental costs you incurred to acquire each of those replacement assets (which can include giving property, see section 103-5); (iii) the amount of * fourth element expenditure incurred in relation to each of those replacement assets; in relation to which such a change did not occur. (6) If * CGT event J6 has happened in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to the 152-E amount reduced by the amount of the capital gain under that event. (7) If * CGT event J2 happens again in a later income year in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to any remaining part of the 152-E amount reduced by the amount of the capital gain under the earlier event. (8) CGT event J2 does not happen because of paragraph (2)(a) for a * share in a company or an interest in a trust if the share or interest ceased to be an * active asset only because of changes in the * market values of assets that were owned by the company or trust when you * acquired the share or interest or incurred the * fourth element expenditure. (9) You incur fourth element expenditure in relation to a * CGT asset if you incur capital expenditure that is included, under subsection 110-25(5), in the fourth element of the * cost base of the asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.190 Modifying or extending the replacement asset period (1) The replacement asset period is modified if your * capital proceeds for the * CGT event are increased under subsection 116-45(2) or 116-60(3) after the end of that period. Instead, you have until 12 months after you receive those additional proceeds to * acquire a replacement asset, or incur *fourth element expenditure in relation to a * CGT asset, or do both. Note: Section 116-45 applies if you do not receive your capital proceeds despite having taken all reasonable steps to get them, and section 116-60 applies if your capital proceeds are misappropriated by your employee or agent. (2) The Commissioner may extend the replacement asset period, or that period as modified by subsection (1). INCOME TAX ASSESSMENT ACT 1997 - SECT 104.195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 (1) CGT event J4 happens if: (a) there is a roll-over under Subdivision 124-N for a trust * disposing of a *CGT asset to a company under a trust restructure; and (b) the trust fails to cease to exist: (i) within 6 months after the start of the * trust restructuring period; or (ii) if that is not possible because of circumstances outside the control of the trustee--as soon as practicable after the end of that 6 month period; and (c) the company owns the asset when the failure happens. Example: Circumstances would be outside the control of the trustee if the trustee is involved in litigation concerning the trust and cannot wind up the trust until the litigation is finished. (2) CGT event J4 also happens if: (a) there is a roll-over under Subdivision 124-N for an entity (the shareholding entity) receiving a * share in a company in exchange for a unit or interest in a trust under a trust restructure; and (b) the trust fails to cease to exist: (i) within 6 months after the start of the * trust restructuring period; or (ii) if that is not possible because of circumstances outside the control of the trustee--as soon as practicable after the end of that 6 month period; and (c) the shareholding entity owns the share when the failure happens. (3) The time of the event is when the failure to cease to exist happens. (4) The company makes a capital gain if the * CGT asset's * market value at the time the company * acquired the asset is more than its *cost base at that time. The company makes a capital loss if that market value is less than the asset's * reduced cost base at that time. (5) This Part and Part 3-3 apply to the company from just after the time of the event as if the first element of the * cost base and *reduced cost base of the asset were its * market value at the time the company *acquired the asset. (6) The shareholding entity makes a capital gain if the * share's * market value at the time the entity * acquired the share is more than its *cost base at that time. The shareholding entity makes a capital loss if that market value is less than the share's * reduced cost base at that time. (7) This Part and Part 3-3 apply to the shareholding entity from just after the time of the event as if the first element of the * cost base and * reduced cost base of the * share were its * market value at the time the entity * acquired the share. Exception (8) This section does not apply to a * CGT asset acquired under a trust restructure that happened before the day on which the Taxation Laws Amendment Act (No. 4) 2002 received the Royal Assent. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 (1) CGT event J5 happens if you choose a small business roll-over under Subdivision 152-E for a * CGT event that happens in relation to a * CGT asset in an income year and, by the end of the replacement asset period: (a) you have not * acquired a replacement asset (the replacement asset), and have not incurred * fourth element expenditure in relation to a CGT asset (also the replacement asset); or (b) the replacement asset does not satisfy the conditions set out in subsection (2). Note: You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J5 (see subsection 152-305(4)). (2) The conditions are: (a) the replacement asset must be your * active asset; and (b) if the replacement asset is a * share in a company or an interest in a trust: (i) you, or an entity * connected with you, must be a * CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust must have a * small business participation percentage in you of at least 90%. Example: Joseph owns 50% of the shares in Company A and Company B. He is therefore a CGT concession stakeholder in the companies: see section 152-60. The companies are connected with Joseph (see section 328-125) because he controls both of them. Company A owns land which it leases to Joseph for use in a business. It sells the land at a profit and buys shares in Company B. Subsection (2) is satisfied for the shares because Joseph is connected with Company A and is a CGT concession stakeholder in Company B. (3) The time of the event is at the end of the replacement asset period. (4) You make a capital gain equal to the amount of the * capital gain that you disregarded under Subdivision 152-E. (5) The replacement asset period may be modified or extended as mentioned in section 104-190. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.198 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6 (1) CGT event J6 happens if you choose a small business roll-over under Subdivision 152-E for a * CGT event that happens in relation to a * CGT asset in an income year and: (a) by the end of the replacement asset period, you have done either or both of the following: (i) * acquired a replacement asset (the replacement asset); (ii) incurred * fourth element expenditure in relation to a CGT asset (also the replacement asset); and (b) at the end of the replacement asset period, the replacement asset is your * active asset; and (c) if the replacement asset is a * share in a company or an interest in a trust, at the end of the replacement asset period: (i) you, or an entity * connected with you, are a * CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust have a * small business participation percentage in you of at least 90%; and (d) the total (the amount incurred) of the following, in relation to each replacement asset that satisfied paragraph (b) and, if applicable, paragraph (c), is less than the amount of the capital gain that you disregarded: (i) the first element of the * cost base; (ii) the * incidental costs you incurred (which can include giving property, see section 103-5); (iii) the amount of fourth element expenditure incurred. Note: You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J6 (see subsection 152-305(4)). (2) The time of the event is at the end of the replacement asset period. (3) You make a capital gain equal to the difference between: (a) the amount of the * capital gain that you disregarded under Subdivision 152-E; and (b) the amount incurred. (4) The replacement asset period may be modified or extended as mentioned in section 104-190. Table of sections 104-210 Bankrupt pays amount in relation to debt: CGT event K2 104-215 Asset passing to tax-advantaged entity: CGT event K3 104-220 CGT asset starts being trading stock: CGT event K4 104-225 Special collectable losses: CGT event K5 104-230 Pre-CGT shares or trust interest: CGT event K6 104-235 Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7 104-240 Working out capital gain or loss for CGT event K7: general case 104-245 Working out capital gain or loss for CGT event K7: pooled assets 104-250 Direct value shifts: CGT event K8 104-255 Carried interests: CGT event K9 104-260 Certain short-term forex realisation gains: CGT event K10 104-265 Certain short-term forex realisation losses: CGT event K11 104-270 Foreign hybrids: CGT event K12 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.210 Bankrupt pays amount in relation to debt: CGT event K2 (1) CGT event K2 happens if: (a) you made a * net capital loss for an income year that, because of subsection 102-5(2), cannot be applied in working out whether you made a * net capital gain for the income year or a later one; and (b) you make a payment in an income year (the payment year) in respect of a debt that was taken into account in working out the amount of that net capital loss; and (c) ignoring subsection 102-5(2), some part of the net capital loss (the denied part) would have been applied (if you had made sufficient * capital gains) in working out whether you had made a *net capital gain for the payment year. The payment can include giving property: see section 103-5. (2) The time of the event is when you make the payment. (3) You make a capital loss equal to the smallest of: (a) the amount you paid; or (b) that part of it that was taken into account in working out the denied part; or (c) the denied part less the sum of * capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part. (4) In calculating that capital loss, disregard any amount you have received as * recoupment of the payment and that is not included in your assessable income. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.215 Asset passing to tax-advantaged entity: CGT event K3 (1) CGT event K3 happens if you die and a * CGT asset you owned just before dying * passes to a beneficiary in your estate who (when the asset passes): (a) is an * exempt entity; or (b) is the trustee of a * complying superannuation entity; or (c) is a foreign resident. (2) If the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if: (a) you were an Australian resident just before dying; and (b) the asset (in the hands of the beneficiary) is not * taxable Australian property. (3) The time of the event is just before you die. (4) A capital gain is made if the * market value of the asset on the day you died is more than the asset's * cost base. A capital loss is made if that market value is less than the asset's * reduced cost base. Note: The trustee of the estate must include in the date of death return any net capital gain for the income year when you died. Exception (5) A * capital gain or *capital loss is disregarded if you *acquired the asset before 20 September 1985. Note: There is also an exception for certain philanthropic testamentary gifts: see section 118-60. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.220 CGT asset starts being trading stock: CGT event K4 (1) CGT event K4 happens if: (a) you start holding as * trading stock a *CGT asset you already own but do not hold as trading stock; and (b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its * market value. Note 1: Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock. Note 2: There is an exemption if you elect its cost: see section 118-25. (2) The time of the event is when you start. (3) You make a capital gain if the asset's * market value (just before it became * trading stock) is more than its *cost base. You make a capital loss if that market value is less than its * reduced cost base. Exception (4) A * capital gain or *capital loss you make is disregarded if you * acquired the asset before 20 September 1985. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.225 Special collectable losses: CGT event K5 (1) CGT event K5 happens if the requirements in subsections (2), (3) and (4) are satisfied. (2) There is a fall in the * market value of a *collectable of a company or trust. (3) * CGT event A1, C2 or E8 happens to: (a) * shares you own in the company (or in a company that is a member of the same * wholly-owned group); or (b) an interest you have in the trust; and there is no roll-over for that CGT event. (4) As a result of the * capital proceeds from that event being replaced under section 116-80: (a) you make a * capital gain that you would not otherwise have made; or (b) you do not make the * capital loss you would otherwise have made; or (c) you make a capital loss that is less than you would otherwise have made. Note: The capital proceeds from that event are replaced with the market value of the shares or the interest in the trust as if the fall in the market value of collectables and personal use assets had not occurred: see section 116-80. (5) The time of CGT event K5 is the time of * CGT event A1, C2 or E8. (6) You make a capital loss from a * collectable equal to: • the *market value of the * shares or the interest in the trust (worked out as at the time of * CGT event A1, C2 or E8 as if the fall in market value of the collectable had not occurred); less: • the actual *capital proceeds from CGT event A1, C2 or E8. Example: You own 50% of the shares in a company. You bought them in 1999 for $60,000. The company owns a painting worth $100,000 and another asset worth $20,000. The painting falls in value to $50,000. In 1999 you sell your shares for $35,000 (the actual capital proceeds). You would otherwise make a capital loss of $25,000. However, the actual capital proceeds are replaced with $60,000 (the market value of the shares if the painting had not fallen in value). You do not make a capital loss from selling the shares. You do make a collectable loss equal to: Note: You can subtract capital losses from collectables only from your capital gains from collectables: see section 108-10. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.230 Pre-CGT shares or trust interest: CGT event K6 (1) CGT event K6 happens if: (a) you own * shares in a company or an interest in a trust you * acquired before 20 September 1985; and (b) * CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and (c) there is no roll-over for the other CGT event; and (d) the applicable requirement in subsection (2) is satisfied. (2) Just before the other event happened: (a) the * market value of property of the company or trust (that is not its * trading stock) that was *acquired on or after 20 September 1985; or (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was * acquired on or after 20 September 1985; must be at least 75% of the * net value of the company or trust. (5) The time of CGT event K6 is when the other event happens. (6) You make a * capital gain equal to that part of the *capital proceeds from the * share or interest that is reasonably attributable to the amount by which the * market value of the property referred to in subsection (2) is more than the sum of the * cost bases of that property. Note: You cannot make a capital loss. (7) This section applies to property that a company that is a foreign resident * acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if: (a) the other company acquired it before 20 September 1985; and (b) the companies are members of the same * wholly-owned group; and (c) the property is not * taxable Australian property. (8) In working out the * net value of a company or trust for the purposes of subsection (2), disregard: (a) the discharge or release of any liabilities; or (b) the * market value of any *CGT assets acquired; if the discharge or release, or the * acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation. Exceptions (9) CGT event K6 does not happen if: (a) for a company referred to in subsection (2)--some of its * shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at the time of the other event and at all times in the period of 5 years before the time of the other event; or (b) for a trust referred to in subsection (2) that is a unit trust--some of its units were so listed, or were ordinarily available to the public for subscription or purchase, at the time of the other event and at all times in that period. (9A) Paragraph (9)(a) applies to a case where: (a) the company referred to in subsection (2) is a * demerged entity; and (b) * shares in the demerged entity do not satisfy the test referred to in that paragraph; and (c) the demerger happened not more than 5 years before the other CGT event happened; as if shares in the demerged entity were listed for quotation in the official list of a stock exchange in Australia or a foreign country at all times when some of the shares in the * head entity of the *demerger group were so listed. Example: Louise owns shares in a company which has been listed for 3 years. The company is the head entity of a demerger group. As part of a demerger, she receives new interests in a demerged entity. The demerged entity then lists in its own right. Since the head entity was listed for only 3 years, the demerged entity must remain listed for 2 years before Louise's new interests become eligible for the exception from CGT event K6. (9B) Paragraph (9)(b) applies to a case where: (a) the trust referred to in subsection (2) is a * demerged entity and a unit trust; and (b) units in the demerged entity do not satisfy the test referred to in that paragraph; and (c) the demerger happened not more than 5 years before the other CGT event happened; as if units in the demerged entity were listed for quotation in the official list of a stock exchange in Australia or a foreign country, or were ordinarily available to the public for subscription or purchase, at all times when some of the units in the * head entity of the *demerger group were so listed or available. (10) A * capital gain is disregarded for a *share in a company or an interest in a trust to the extent that, had you * acquired it on or after 20 September 1985, you could have chosen a roll-over for the other *CGT event under Subdivision 124-M (scrip for scrip roll-over). Example: Bill owns a unit in a trust that he acquired before 20 September 1985. He exchanges the unit for a unit in another trust worth $60 and $40 cash. He makes a capital gain of $50 because of CGT event K6. Had the unit been acquired after 20 September 1985, Bill would have been entitled to a partial roll-over of the capital gain under Subdivision 124-M to the extent that his capital proceeds constituted a replacement unit. Bill can therefore disregard 60 /100 of the $50 gain ($30). The cost base of Bill's replacement unit is reduced by this amount. Bill must include the remaining $20 of the CGT event K6 gain in the calculation of his net capital gain or loss for the year. Note: A capital gain or loss made by a demerging entity from CGT event K6 happening as a result of a demerger is also disregarded: see section 125-155. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.235 Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7 (1) CGT event K7 happens if: (a) a * balancing adjustment event occurs for a *depreciating asset you * held; and (b) at some time when you held the asset, you used it, or had it * installed ready for use, for a purpose other than a *taxable purpose. (1A) However, subsection (1) does not apply if: (a) you are an * R&D entity and you could deduct an amount under section 40-25 for the * depreciating asset if the following assumptions were made: (i) despite paragraph 40-30(1)(c) and subsection 40-30(2), all intangible assets were excluded from the definition of depreciating asset in section 40-30; (ii) subsection 40-45(2) did not, except in the case of buildings, prevent Division 40 from applying to capital works to which Division 43 applies, or to which Division 43 would apply but for expenditure being incurred, or capital works being started, before a particular day; (iii) you satisfied any relevant requirement for deductibility under Division 40; or (b) there is roll-over relief for the * balancing adjustment event under section 40-340 of this Act; or (c) the asset is one for which you or another entity has deducted or can deduct amounts under Subdivision 40-F or 40-G. (1B) CGT event K7 also happens if: (a) you are an * R&D entity; and (b) a * balancing adjustment event occurs for a *depreciating asset you * held; and (c) when you held the asset, you could deduct an amount under section 40-25 for the asset if the assumptions set out in paragraph (1A)(a) were made; and (d) at some time when you held the asset: (i) you used it other than for a taxable purpose or for the purpose of conducting * R&D activities for which you were registered under section 27A of the Industry Research and Development Act 1986; or (ii) you had it installed ready for use other than for a taxable purpose. Note: For subparagraph (d)(i), disregard any use of the asset for the purpose of carrying on research and development activities (within the meaning of former section 73B of the Income Tax Assessment Act 1936): see section 104-235 of the Income Tax (Transitional Provisions) Act 1997. (2) The time of * CGT event K7 is when the *balancing adjustment event occurs. (3) Any * capital gain or *capital loss is worked out: (a) under section 104-240; or (b) under section 104-245 if the * depreciating asset was allocated to a low-value pool. (4) A * capital gain or *capital loss you make is disregarded if: (a) the * depreciating asset covered by subsection (1) or (1B) is a * pre-CGT asset; or (b) you can deduct an amount for the asset under Division 328 (about small business entities) for the income year in which the * balancing adjustment event occurred. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.240 Working out capital gain or loss for CGT event K7: general case (1) You make a capital gain if the * termination value of the *depreciating asset covered by subsection 104-235(1) or (1B) is more than its * cost. The amount of the *capital gain is: where: "sum of reductions" is the sum of: (a) if the * depreciating asset is covered by subsection 104-235(1)--the reductions in your deductions for the asset under section 40-25; or (b) if the depreciating asset is covered by subsection 104-235(1B)--the reductions that would have been required under section 40-25 on the assumption that using the asset for a * taxable purpose included using it for the purpose of conducting * R&D activities for which you were registered under section 27A of the Industry Research and Development Act 1986. "total decline" is the decline in value of the * depreciating asset since you started to *hold it.Note 1: This subsection applies in a modified way if you used the asset for the purpose of carrying on research and development activities (within the meaning of former section 73B of the Income Tax Assessment Act 1936): see section 104-235 of the Income Tax (Transitional Provisions) Act 1997. Note 2: The CGT concepts of cost base and capital proceeds are not relevant for this event. (2) You make a capital loss if the * cost of the * depreciating asset covered by subsection 104-235(1) or (1B) is more than its * termination value. The amount of the * capital loss is: where: "sum of reductions and total decline" have the same meanings as in subsection (1). (3) In applying subsection (1) or (2), reduce the * termination value of the * depreciating asset by so much of an amount misappropriated by your employee or * agent (whether by theft, embezzlement, larceny or otherwise) as represents an amount applicable to you under: (a) item 8 of the table in subsection 40-300(2); or (b) item 1, 3, 4 or 6 of the table in subsection 40-305(1); in relation to the * balancing adjustment event. (4) If you later receive an amount as * recoupment of all or part of the amount misappropriated, the amount applicable under subsection (3) is increased by the amount received. (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this section for an income year if: (a) you discover the misappropriation, or you receive an amount as * recoupment of all or part of the amount misappropriated, after you lodged your * income tax return for the income year; and (b) the amendment is made at any time during the period of 4 years starting immediately after you discover the misappropriation or receive the amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.245 Working out capital gain or loss for CGT event K7: pooled assets (1) You make a capital gain if the * depreciating asset's * termination value is more than its * cost. The amount of the *capital gain is: where: "taxable use fraction" is the taxable use percentage (expressed as a fraction) that you estimated for the asset when you allocated it to the pool.Note: The CGT concepts of cost base and capital proceeds are not relevant for this event. (2) You make a capital loss if the * depreciating asset's * cost is more than its * termination value. The amount of the * capital loss is: where: "taxable use fraction" has the same meaning as in subsection (1). (3) In applying subsection (1) or (2), reduce the * termination value of the * depreciating asset by so much of an amount misappropriated by your employee or * agent (whether by theft, embezzlement, larceny or otherwise) as represents an amount applicable to you under: (a) item 8 of the table in subsection 40-300(2); or (b) item 1, 3, 4 or 6 of the table in subsection 40-305(1); in relation to the * balancing adjustment event. (4) If you later receive an amount as * recoupment of all or part of the amount misappropriated, the amount applicable under subsection (3) is increased by the amount received. (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this section for an income year if: (a) you discover the misappropriation, or you receive an amount as * recoupment of all or part of the amount misappropriated, after you lodged your * income tax return for the income year; and (b) the amendment is made at any time during the period of 4 years starting immediately after you discover the misappropriation or receive the amount. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.250 Direct value shifts: CGT event K8 (1) CGT event K8 happens if there is a * taxing event generating a gain for a * down interest under section 725-245. Note: That section sets out some of the CGT consequences of a direct value shift for affected owners of down interests. See also the rest of Division 725. (2) The time of the event is the * decrease time for the * down interest. (3) You make a capital gain equal to the gain generated for the taxing event. Note: You cannot make a capital loss. (4) If, because of the same * direct value shift, there are 2 or more * taxing events generating a gain that are covered by subsection (1), CGT event K8 happens for each of those taxing events, and you make a separate capital gain for each. Exceptions (5) A * capital gain is disregarded if the *down interest is a * pre-CGT asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.255 Carried interests: CGT event K9 (1) CGT event K9 happens if you become entitled to receive a payment of a * carried interest of a *general partner in a * VCLP, an *ESVCLP or an *AFOF or a *limited partner in a * VCMP. (2) The time of the event is the time you become entitled to receive the payment. (3) You make a capital gain equal to the * capital proceeds from the * CGT event. Note: You cannot make a capital loss. Meaning of carried interest (4) The carried interest of a * general partner in a * VCLP, an *ESVCLP or an *AFOF is the partner's entitlement to a distribution from the VCLP, ESVCLP or AFOF, to the extent that the distribution is contingent upon the attainment of profits for the * limited partners in the VCLP, ESVCLP or AFOF. (5) The carried interest of a * limited partner in a * VCMP is the partner's entitlement to a distribution from the VCMP, to the extent that the distribution is contingent upon the attainment of profits for the * limited partners in the VCLP, ESVCLP or AFOF in which the VCMP is a * general partner. (6) The * carried interest does not include: (a) any part of the partner's entitlement to that distribution that is attributable to a fee (by whatever name called) for the management of the * VCLP, *ESVCLP, *AFOF or *VCMP; or (b) any part of the partner's entitlement to that distribution that is attributable to the partner's * equity interest in the VCLP, ESVCLP, AFOF or VCMP. Meaning of payment of carried interest (7) Payment, of a * carried interest, includes: (a) a payment that is attributable to the carried interest; or (b) the giving of property in satisfaction of the carried interest: see section 103-5; or (c) the giving of property in satisfaction of an entitlement that is attributable to the carried interest: see section 103-5. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.260 Certain short-term forex realisation gains: CGT event K10 (1) CGT event K10 happens if: (a) you make a * forex realisation gain as a result of forex realisation event 2; and (b) item 1 of the table in subsection 775-70(1) applies. (2) The time of the event is when the forex realisation event happens. (3) You make a capital gain equal to the * forex realisation gain. Note: You cannot make a capital loss under CGT event K10. However, if you make a forex realisation loss covered by item 1 of the table in subsection 775-75(1), you will make a capital loss under CGT event K11 ( see section 104-265). INCOME TAX ASSESSMENT ACT 1997 - SECT 104.265 Certain short-term forex realisation losses: CGT event K11 (1) CGT event K11 happens if: (a) you make a * forex realisation loss as a result of forex realisation event 2; and (b) item 1 of the table in subsection 775-75(1) applies. (2) The time of the event is when the forex realisation event happens. (3) You make a capital loss equal to the * forex realisation loss. Note: You cannot make a capital gain under CGT event K11 . However, if you make a forex realisation gain covered by item 1 of the table in subsection 775-70(1), you will make a capital gain under CGT event K10 ( see section 104-260). INCOME TAX ASSESSMENT ACT 1997 - SECT 104.270 Foreign hybrids: CGT event K12 (1) CGT event K12 happens if, in accordance with paragraph 830-50(2)(b) or (3)(b), you make a * capital loss under this section for an income year. (2) The time of the event is just before the end of the income year. (3) You make a capital loss equal to the amount applicable under paragraph 830-50(2)(b) or (3)(b). Table of sections 104-500 Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 104-505 Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 104-510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3 104-515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 104-520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 104-525 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 104-535 Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.500 Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 (1) CGT event L1 happens if, under section 705-57 (including in its application in accordance with Subdivisions 705-B to 705-E), there is a reduction in the * tax cost setting amount of assets of an entity that becomes a * subsidiary member of a *consolidated group or a * MEC group. (2) The time of the event is just after the entity becomes a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital loss equal to the reduction. (4) The amount of the capital loss that can be applied to reduce the head company's * capital gains for the first income year ending after the entity becomes a * subsidiary member of the group (the first income year) cannot exceed 1 /5 of the *capital loss. (5) The amount of the * net capital loss from the first income year, to the extent the amount is attributable to the * capital loss (the extent being the event L1 attributable loss), that can be applied to reduce the head company's * capital gains for a later income year cannot exceed the amount worked out for the year using the following table: Limit on applying event L1 attributable loss Item For this income year: The amount of the event L1 attributable loss that can be applied cannot exceed: 1 For the second income year ending after the entity became a * subsidiary member The difference between: (a) 2/5 of the * capital loss; and (b) the amount of the capital loss that was applied in accordance with subsection (4) for the first income year. 2 For the third income year ending after the entity became a * subsidiary member The difference between: (a) 3/5 of the * capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amount of the event L1 attributable loss that was applied to reduce the entity's * capital gains for the next income year after the first income year. 3 For the fourth income year ending after the entity became a * subsidiary member The difference between: (a) 4/5 of the * capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amounts of the event L1 attributable loss that were applied to reduce the entity's * capital gains for earlier income years ending after the first income year. 4 For the fifth income year ending after the entity became a * subsidiary member, or for any later income year The difference between: (a) the * capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amounts of the event L1 attributable loss that were applied to reduce the entity's * capital gains for earlier income years ending after the first income year. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.505 Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 (1) CGT event L2 happens if: (a) an entity becomes a * subsidiary member of a * consolidated group or a * MEC group; and (b) in working out the group's * allocable cost amount for the entity, the amount remaining after applying step 3A of the table in section 705-60 is negative. (2) The time of the event is just after the entity becomes a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital gain equal to the amount remaining. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3 (1) CGT event L3 happens if: (a) an entity becomes a * subsidiary member of a * consolidated group or a * MEC group; and (b) the sum of the * tax cost setting amounts for all * retained cost base assets that are taken into account under paragraph 705-35(1)(b) in working out the tax cost setting amount of each reset cost base asset of the entity exceeds the group's * allocable cost amount for the entity. (2) The time of the event is just after the entity becomes a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital gain equal to the excess. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 (1) CGT event L4 happens if: (a) an entity becomes a * subsidiary member of a * consolidated group or a * MEC group; and (b) in working out the * tax cost setting amount for assets of the entity in accordance with section 705-35 (including in its application in accordance with Subdivisions 705-B to 705-D), there is an amount that results after applying paragraphs 705-35(1)(b) and (c) (including in their application in accordance with those Subdivisions); and Note: Section 705-35 is about the tax cost setting amount for reset cost base assets. (c) it is not possible to allocate, in accordance with the latter paragraph, the amount that results because there are no reset cost base assets of the kind mentioned in that paragraph. (2) The time of the event is just after the entity becomes a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital loss equal to the amount that results. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 (1) CGT event L5 happens if: (a) an entity ceases to be a * subsidiary member of a * consolidated group or a * MEC group; and (b) in working out the group's * allocable cost amount for the entity, the amount remaining after applying step 4 of the table in section 711-20 is negative. (2) The time of the event is when the entity ceases to be a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital gain equal to the amount remaining. Note: The amount remaining may be reduced under section 707-415. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.525 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 (1) CGT event L6 happens if: (a) you are the * head company of a *consolidated group or a * MEC group; and (b) the conditions in section 705-315 (about errors in tax cost setting amounts) are satisfied for a * subsidiary member of the group; and (c) you have a * net overstated amount or a *net understated amount for the subsidiary member. (2) The time of the event is the start of the income year in which the Commissioner becomes aware of the errors. (3) You work out whether you have a net overstated amount or net understated amount using this table: Meaning of net overstated amount and net understated amount Item In this situation: There is this result: 1 There are one or more overstated amounts under section 705-315 for the * subsidiary member but no understated amount under that section for the subsidiary member There is a net overstated amount. It is the overstated amount, or the sum of the overstated amounts. 2 There are one or more understated amounts under section 705-315 for the * subsidiary member but no overstated amount under that section for the subsidiary member There is a net understated amount. It is the understated amount, or the sum of the understated amounts. 3 There are both one or more overstated amounts and one or more understated amounts under section 705-315 for the * subsidiary member and the sum of the overstated amounts exceeds the sum of the understated amounts There is a net overstated amount. It is the difference between those sums 4 There are both one or more overstated amounts and one or more understated amounts under section 705-315 for the * subsidiary member and the sum of the overstated amounts is less than the sum of the understated amounts There is a net understated amount. It is the difference between those sums (4) If the time when the Commissioner becomes aware of the errors is within the period within which the Commissioner may amend all of the assessments necessary to correct the errors, then, for the head company core purposes mentioned in subsection 701-1(2): (a) if you have a * net overstated amount--you make a capital gain equal to that amount; or (b) if you have a * net understated amount--you make a capital loss equal to that amount. (5) If the time when the Commissioner becomes aware of the errors is not within that period, then, for the head company core purposes mentioned in subsection 701-1(2): (a) if you have a * net overstated amount--you make a capital gain of the amount worked out under subsection (6); or (b) if you have a * net understated amount--you make a capital loss of the amount worked out under subsection (6). (6) The amount of the * capital gain or *capital loss is worked out as follows: where: "current asset setting amount" means the * tax cost setting amount for all assets referred to in subsection 705-315(2) as reset cost base assets that the *head company of the *consolidated group or the *MEC group held continuously from the time when the *subsidiary member joined the group until the start of the head company's income year that is the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors. "original asset setting amount" means the * tax cost setting amount for all assets referred to in subsection 705-315(2) as reset cost base assets that the *subsidiary member held at the time it joined the group. "stated amount" means the * net overstated amount or the *net understated amount, as the case requires. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.535 Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8 (1) CGT event L8 happens if: (a) an entity becomes a * subsidiary member of a * consolidated group or a * MEC group; and (b) the * tax cost setting amount for a reset cost base asset of the entity is reduced under subsection 705-40(1) (including in its application in accordance with Subdivisions 705-B to 705-D); and (c) some or all (the unallocated amount) of the reduction cannot be allocated as mentioned in subsection 705-40(2). (2) The time of the event is just after the entity becomes a * subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701-1(2), the * head company makes a capital loss equal to the unallocated amount. Table of Subdivisions Guide to Division 106 106-A Partnerships 106-B Bankruptcy and liquidation 106-C Absolutely entitled beneficiaries 106-D Security holders Guide to Division 106 INCOME TAX ASSESSMENT ACT 1997 - SECT 106.1 What this Division is about This Division sets out the cases where a capital gain or loss is made by someone other than the entity to which a CGT event happens. The entities affected are: * partnerships (Subdivision 106-A); * bankruptcy trustees and company liquidators (Subdivision 106-B); * trustees where there is an absolutely entitled beneficiary (Subdivision 106-C); * security holders (Subdivision 106-D). INCOME TAX ASSESSMENT ACT 1997 - SECT 106.5 Partnerships (1) Any * capital gain or *capital loss from a *CGT event happening in relation to a partnership or one of its * CGT assets is made by the partners individually. Each partner's gain or loss is calculated by reference to the partnership agreement, or partnership law if there is no agreement. Example 1: A partnership creates contractual rights in another entity (CGT event D1). Each partner's capital gain or loss is calculated by allocating an appropriate share of the capital proceeds from the event and the incidental costs that relate to the event (according to the partnership agreement, or partnership law if there is no agreement). Example 2: Helen and Clare set up a business in partnership. Helen contributes a block of land to the partnership capital. Their partnership agreement recognises that Helen has a 75% interest in the land and Clare 25%. The agreement is silent as to their interests in other assets and profit sharing. When the land is sold, Helen's capital gain or loss will be determined on the basis of her 75% interest. For other partnership assets, Helen's gain or loss will be determined on the basis of her 50% interest (under the relevant Partnership Act). (2) Each partner has a separate * cost base and *reduced cost base for the partner's interest in each * CGT asset of the partnership. (3) If a partner leaves a partnership, a remaining partner * acquires a separate * CGT asset to the extent that the remaining partner acquires a share of the departing partner's interest in a partnership asset. Note: The remaining partners would not be affected if the departing partner sells its interests to an entity that was not a partner. Example: (Indexation is ignored for the purpose of this example). John, Wil and Patricia form a partnership (in equal shares). John contributes a building (which is a pre-20 September 1985 asset) having a market value of $200,000. Wil and Patricia contribute $200,000 each in cash. The partnership buys another asset for $400,000. John is taken to have disposed of 2 /3 of his interest in the building (1/3 to Wil and 1/3 to Patricia). His remaining 1 /3 share in the building remains a pre-CGT asset. The 1 /3 shares that Wil and Patricia acquire are post-CGT assets. Wil retires from the partnership when the partnership assets have a market value of $1,200,000 ($500,000 for the building and $700,000 for the other asset). John and Patricia pay Wil $400,000 for his interest in the partnership. Wil has a capital gain of $100,000 on the building and $100,000 on the other asset. John and Patricia each acquire an additional 1 /6 interest in the partnership assets. These additional interests are separate assets and post-CGT assets. (4) If a new partner is admitted to a partnership: (a) the new partner * acquires a share (according to the partnership agreement, or partnership law if there is no agreement) of each partnership asset; and (b) the existing partners are treated as having * disposed of part of their interest in each partnership asset to the extent that the new partner has acquired it. Example: (Indexation is ignored for the purpose of this example). Lyn and Barry form a partnership, each contributing $15,000 to its capital. The partnership buys land for $30,000. The land increases in value to $300,000. Andrew is admitted as an equal partner, paying Lyn and Barry $50,000 each to acquire a 1 /3 share in the land. His cost base is $100,000. Lyn and Barry have each disposed of 1 /3 of their interest in the land. Each has a cost base for that interest of $5,000, and capital proceeds of $50,000, leaving them with a capital gain of $45,000 each on Andrew's admission to the partnership. The land is sold for its market value. Andrew has no capital gain on the land. Lyn and Barry have disposed of their remaining 2 /3 original interest in the land for capital proceeds of $100,000, leaving each of them with a capital gain of: Table of sections 106-30 Effect of bankruptcy 106-35 Effect of liquidation INCOME TAX ASSESSMENT ACT 1997 - SECT 106.30 Effect of bankruptcy (1) For the purposes of this Part and Part 3-3, the vesting of the individual's * CGT assets in the trustee under the Bankruptcy Act 1966 or under a similar foreign law is ignored. (2) This Part and Part 3-3 apply to an act done in relation to a * CGT asset of an individual in these circumstances as if it had been done by the individual: (a) as a result of the bankruptcy of the individual by the Official Trustee in Bankruptcy or a registered trustee, or the holder of a similar office under a * foreign law; (b) by a trustee under a personal insolvency agreement made under Part X of the Bankruptcy Act 1966, or under a similar instrument under a foreign law; (c) by a trustee as a result of an arrangement with creditors under that Act or a foreign law. INCOME TAX ASSESSMENT ACT 1997 - SECT 106.35 Effect of liquidation This Part and Part 3-3 apply to an act done by a liquidator of a company, or the holder of a similar office under a * foreign law, as if the act had been done instead by the company. Example: Ben, a liquidator of a company, sells a CGT asset of the company. Any capital gain or loss is made by the company, not by Ben. INCOME TAX ASSESSMENT ACT 1997 - SECT 106.50 Absolutely entitled beneficiaries If you are absolutely entitled to a * CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it. INCOME TAX ASSESSMENT ACT 1997 - SECT 106.60 Acts by security holders This Part and Part 3-3 apply to an act done by an entity (or an * agent of the entity) in relation to a *CGT asset for the purpose of enforcing or giving effect to a security, charge or encumbrance the entity holds over the asset as if the act had been done instead by the person who provided the security. Example: A lender sells property under a power of sale after the failure of the owner of the property to make payments on the loan. Any capital gain or loss is made by the owner of the property, not the lender. Table of Subdivisions Guide to Division 108 108-A What a CGT asset is 108-B Collectables 108-C Personal use assets 108-D Separate CGT assets Guide to Division 108 INCOME TAX ASSESSMENT ACT 1997 - SECT 108.1 What this Division is about This Division defines the various categories of assets that are relevant to working out your capital gains and losses. They are CGT assets, collectables and personal use assets. It also tells you how capital losses from collectables and personal use assets are relevant to working out your net capital gain or loss. It also sets out when land, buildings and capital improvements are taken to be separate CGT assets. Table of sections 108-5 CGT assets 108-7 Interest in CGT assets as joint tenants INCOME TAX ASSESSMENT ACT 1997 - SECT 108.5 CGT assets (1) A CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. (2) To avoid doubt, these are CGT assets: (a) part of, or an interest in, an asset referred to in subsection (1); (b) goodwill or an interest in it; (c) an interest in an asset of a partnership; (d) an interest in a partnership that is not covered by paragraph (c). Note 1: Examples of CGT assets are: * land and buildings; * shares in a company and units in a unit trust; * options; * debts owed to you; * a right to enforce a contractual obligation; * foreign currency. Note 2: An asset is not a CGT asset if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of former Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.7 Interest in CGT assets as joint tenants Individuals who own a * CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common. Note: Section 128-50 contains rules that apply when a joint tenant dies. Table of sections 108-10 Losses from collectables to be offset only against gains from collectables 108-15 Sets of collectables 108-17 Cost base of a collectable INCOME TAX ASSESSMENT ACT 1997 - SECT 108.10 Losses from collectables to be offset only against gains from collectables (1) In working out your * net capital gain or * net capital loss for the income year, * capital losses from *collectables can be used only to reduce *capital gains from collectables. Note: You choose the order in which you reduce your capital gains from collectables by your capital losses from collectables. Example: Your capital gains from collectables total $200 and your capital losses from collectables total $400. You have other capital gains of $500. You have a net capital gain of $500 and a net capital loss from collectables of $200. The losses from collectables cannot be used to reduce the $500 capital gain. (2) A collectable is: (a) * artwork, jewellery, an antique, or a coin or medallion; or (b) a rare folio, manuscript or book; or (c) a postage stamp or first day cover; that is used or kept mainly for your (or your * associate's) personal use or enjoyment. (3) These are also collectables: (a) an interest in any of the things covered by subsection (2); or (b) a debt that arises from any of those things; or (c) an option or right to * acquire any of those things. Note: Collectables acquired for $500 or less are exempt. However, you get an exemption for an interest in one only if the market value of all the interests combined is $500 or less: see Subdivision 118-A. (4) If some or all of a * capital loss from a * collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your * capital gains from *collectables exceed your *capital losses (if any) from collectables. Example: You have a capital gain from a collectable for the income year of $200 and a capital loss from another collectable of $600. Your capital loss from one collectable reduces your capital gain from the other to zero. You cannot apply the remaining $400 of the capital loss in this income year, but you can apply it in a later income year. (5) If you have 2 or more unapplied * net capital losses from * collectables, you must apply them in the order you made them. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.15 Sets of collectables (1) This section sets out what happens if: (a) you own * collectables that are a set; and (b) they would ordinarily be * disposed of as a set; and (c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10. Example: You buy a set of 3 books for $900. You apportion the $900 among each book: see section 112-30. If the books are of equal value, you have acquired each one for $300. If you dispose of each book individually, you would ordinarily obtain the exemption in section 118-10, because you acquired each one for less than $500. (2) The set of * collectables is taken to be a single *collectable and each of your * disposals is a disposal of part of that collectable. Example: To continue the example, the 3 books are taken to be a single collectable. You will not obtain the exemption in section 118-10, because you acquired the set for more than $500. You work out if you make a capital gain or loss from a disposal of part of an asset by comparing the capital proceeds from it with the cost base or reduced cost base (as appropriate) of the disposed part. Note 1: Section 112-30 tells you how to apportion the cost base and reduced cost base of a CGT asset on a disposal of part of an asset. Note 2: This section does not apply to a collectable you last acquired before 16 December 1995: see section 108-15 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.17 Cost base of a collectable In working out the * cost base of a *collectable, disregard the third element (about costs of ownership). Table of sections 108-20 Losses from personal use assets must be disregarded 108-25 Sets of personal use assets 108-30 Cost base of a personal use asset INCOME TAX ASSESSMENT ACT 1997 - SECT 108.20 Losses from personal use assets must be disregarded (1) In working out your * net capital gain or * net capital loss for the income year, any * capital loss you make from a *personal use asset is disregarded. (2) A personal use asset is: (a) a * CGT asset (except a *collectable) that is used or kept mainly for your (or your * associate's) personal use or enjoyment; or (b) an option or right to * acquire a *CGT asset of that kind; or (c) a debt arising from a * CGT event in which the * CGT asset the subject of the event was one covered by paragraph (a); or (d) a debt arising other than: (i) in the course of gaining or producing your assessable income; or (ii) from your carrying on a * business. Note 1: There is an exemption for a personal use asset you acquire for $10,000 or less: see section 118-10. Note 2: A debt arising from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment is a personal use asset to prevent any loss arising from the debt being a normal capital loss. (3) A personal use asset does not include land, a * stratum unit or a building or structure that is taken to be a separate * CGT asset because of Subdivision 108-D. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.25 Sets of personal use assets (1) This section sets out what happens if: (a) you own * personal use assets that are a set; and (b) they would ordinarily be * disposed of as a set; and (c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10. (2) The set of * personal use assets is taken to be a single * personal use asset and each of your * disposals is a disposal of part of that asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.30 Cost base of a personal use asset In working out the * cost base of a *personal use asset, disregard the third element (about the costs of ownership). Guide to Subdivision 108-D 108-50 What this Subdivision is about For CGT purposes, there are: • exceptions to the common law principle that what is attached to the land is part of the land; and • special rules about buildings and adjacent land; and • rules about when a capital improvement to a CGT asset is treated as a separate CGT asset. Note: In addition to the circumstances set out in this Subdivision, separate asset treatment can apply under section 124-595 (about a roll-over for a Crown lease), section 124-725 (about a roll-over for a prospecting or mining entitlement) and sections 124-895, 124-915 and 124-920 (about roll-overs for FSR transitions). Table of sections Operative provisions 108-55 When is a building a separate asset from land? 108-60 Depreciating asset that is part of a building is a separate asset 108-65 Land adjacent to land acquired before 20 September 1985 108-70 When is a capital improvement a separate asset? 108-75 Capital improvements to CGT assets for which a roll-over may be available 108-80 Deciding if capital improvements are related to each other 108-85 Meaning of improvement threshold Operative provisions INCOME TAX ASSESSMENT ACT 1997 - SECT 108.55 When is a building a separate asset from land? (1) A building or structure on land that you * acquired on or after 20 September 1985 is taken to be a separate * CGT asset from the land if one of these balancing adjustment provisions applies to the building or structure (whether or not there is a balancing adjustment): (a) Subdivision 40-D; or (b) section 355-315 or 355-525 (about R&D). Example: You construct a timber mill building on land you own. The building is subject to a balancing adjustment on its disposal, loss or destruction. It is taken to be a separate CGT asset from the land. (2) A building or structure that is constructed on land that you * acquired before 20 September 1985 is taken to be a separate *CGT asset from the land if: (a) you entered into a contract for the construction on or after that day; or (b) if there is no contract--the construction started on or after that day. Example: You bought a block of land with a building on it on 10 August 1984. On 1 December 1999 you construct another building on the land. The other building is taken to be a separate CGT asset from the land. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.60 Depreciating asset that is part of a building is a separate asset A * depreciating asset that is part of a building or structure is taken to be a separate * CGT asset from the building or structure. Example: You own a factory from which you carry on a business. You install rest rooms for your employees. The plumbing fixtures and fittings are depreciating assets. These are taken to be a separate CGT asset from the factory. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.65 Land adjacent to land acquired before 20 September 1985 Land that you * acquire on or after 20 September 1985 that is adjacent to land (the original land) you acquired before that day is taken to be a separate * CGT asset from the original land if it and the original land are amalgamated into one title. Example: On 1 April 1984 you bought a block of land. On 1 June 1999 you bought another block of land adjacent to the first block. You amalgamate the titles to the 2 blocks into 1 title. The second block is treated as a separate CGT asset. You can make a capital gain or loss from it if you sell the whole area of land. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.70 When is a capital improvement a separate asset? Improvements to land (1) A capital improvement to land is taken to be a separate * CGT asset from the land if one of the balancing adjustment provisions set out in subsection 108-55(1) applies to the improvement (whether or not there is a balancing adjustment). Example: You own land that you use for pastoral operations. You build some fences that are destroyed by fire. The fences are depreciating assets and are subject to a balancing adjustment on their destruction under Division 40. The fences are taken to be a separate CGT asset from the land. Unrelated improvements to pre-CGT assets (2) A capital improvement to a * CGT asset (the original asset) that you * acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate * CGT asset if its * cost base (assuming it were a separate CGT asset) when a CGT event happens (except one that happens because of your death) in relation to the original asset is: (a) more than the * improvement threshold for the income year in which the event happened; and (b) more than 5% of the * capital proceeds from the event. Example: In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000. If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset. Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other. Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40. Related improvements to pre-CGT assets (3) Capital improvements to a * CGT asset (the original asset) that you * acquired before 20 September 1985 that are related to each other are taken to be a separate * CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when a * CGT event happens in relation to the original asset is: (a) more than the * improvement threshold for the income year in which the event happened; and (b) more than 5% of the * capital proceeds from the event. Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvements: see section 116-40. Some improvements not relevant (4) This section does not apply to a capital improvement: (a) that took place under a contract that you entered into before 20 September 1985; or (b) if there is no contract--that started or occurred before that day. (5) Subsections (2) and (3) do not apply if the capital improvement is made to: (a) a * Crown lease; or (b) a * prospecting entitlement or *mining entitlement; or (c) a * statutory licence; or (d) a * depreciating asset to which Subdivision 124-K applies. Note: Section 108-75 deals with this situation. (6) This section does not apply to a capital improvement consisting of repairs to or restoration of a * CGT asset *acquired before 20 September 1985 in circumstances where there is a roll-over under Subdivision 124-B. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.75 Capital improvements to CGT assets for which a roll-over may be available (1) This section is relevant only if a * CGT event happens in relation to a * CGT asset that is: (a) a * Crown lease; or (b) a * prospecting entitlement or *mining entitlement; or (c) a * statutory licence; or (d) a * depreciating asset to which Subdivision 124-K applies. You must have * acquired it before 20 September 1985. Note: Division 124 treats you as having acquired a CGT asset before that day in some situations. (2) There are possible consequences if there has been one or more capital improvements to: (a) the * CGT asset the subject of the *CGT event; or (b) any * CGT assets of the same kind that were in existence before the CGT asset and came to an end where a roll-over was obtained under a provision set out in this table: Roll-over provisions Item For this CGT asset: Roll-over is obtained under this provision: 1 A * Crown lease Subdivision 124-J 2 A prospecting or mining entitlement Subdivision 124-L 3 A * statutory licence Subdivision 124-C or 124-O 4 A * depreciating asset Subdivision 124-K Note: Roll-overs under former sections 160ZWA, 160ZZF, 160ZZPE and 160ZWC of the Income Tax Assessment Act 1936 are also relevant: see section 108-75 of the Income Tax (Transitional Provisions) Act 1997. Example: In 1984 you acquired a commercial fishing licence. In 1986 you paid $62,000 to get an extra right (a capital improvement) attached to the licence. In June 1999 the licence expired and you got a new licence. You obtained a roll-over for the old licence expiring. In April 2000 you sold the new fishing licence for $200,000. (3) Any capital improvement that is not related to another capital improvement is taken to be a separate * CGT asset if its *cost base (assuming it were a separate CGT asset) when the * CGT event happens is: (a) more than the * improvement threshold for the income year in which the event happened; and (b) more than 5% of the * capital proceeds from the event. Example: To continue the example, suppose the cost base of the right is $101,000 and the improvement threshold for the 1999-2000 income year is $96,000. Since the cost base of the right is more than the improvement threshold and more than 5% of the capital proceeds, the right is taken to be a separate CGT asset. Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other. Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvement: see section 116-40. (4) Any capital improvements that are related to each other are taken to be a separate * CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when the * CGT event happens is: (a) more than the * improvement threshold for the income year in which the event happened; and (b) more than 5% of the * capital proceeds from the event. Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvements: see section 116-40. (5) This section does not apply to any capital improvement: (a) that took place under a contract that you entered into before 20 September 1985; or (b) if there is no contract--that started or occurred before that day. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.80 Deciding if capital improvements are related to each other In deciding whether capital improvements are related to each other, the factors to be considered include: (a) the nature of the * CGT asset to which the improvements are made; and (b) the nature, location, size, value, quality, composition and utility of each improvement; and (c) whether an improvement depends in a physical, economic, commercial or practical sense on another improvement; and (d) whether the improvements are part of an overall project; and (e) whether the improvements are of the same kind; and (f) whether the improvements are made within a reasonable period of time of each other. INCOME TAX ASSESSMENT ACT 1997 - SECT 108.85 Meaning of improvement threshold (1) The improvement threshold for the 1997-98 income year is $89,992. (2) The * improvement threshold is indexed annually. Note: Subdivision 960-M shows you how to index amounts. (3) The Commissioner must publish before the beginning of each * financial year the * improvement threshold for that year. Table of Subdivisions Guide to Division 109 109-A Operative rules 109-B Signposts to other acquisition rules Guide to Division 109 INCOME TAX ASSESSMENT ACT 1997 - SECT 109.1 What this Division is about This Division sets out the ways in which you can acquire a CGT asset and the time of acquisition. The time of acquisition is important for indexation, and for the exemption of assets acquired before 20 September 1985. Generally, you acquire a CGT asset when you become its owner. You can also acquire a CGT asset: • as a result of a CGT event happening: see section 109-5; or • in other circumstances: see section 109-10. This Division also directs you to special acquisition rules in other Divisions. Table of sections 109-5 General acquisition rules 109-10 When you acquire a CGT asset without a CGT event 109-15 Exceptions INCOME TAX ASSESSMENT ACT 1997 - SECT 109.5 General acquisition rules (1) In general, you acquire a * CGT asset when you become its owner. In this case, the time when you * acquire the asset is when you become its owner. (2) This table sets out specific rules for the circumstances in which, and the time at which, you acquire a * CGT asset as a result of a * CGT event happening. Note: The full list of CGT events is in section 104-5. Acquisition rules (CGT events) Event Number In these circumstances: You acquire the asset at this time: A1 (case 1) An entity * disposes of a CGT asset to you (except where you compulsorily acquire it) when the disposal contract is entered into or, if none, when the entity stops being the asset's owner A1 (case 2) You compulsorily acquire a * CGT asset from another entity the earliest of: (a) when you paid compensation to the entity; or (b) when you became the asset's owner; or (c) when you entered the asset under the power of compulsory acquisition; or (d) when you took possession of it under that power B1 You enter into an agreement to obtain the use and enjoyment of a * CGT asset when you first obtain the use and enjoyment of the asset (unless title does not pass to you at or before the end of the agreement) D1 An entity creates contractual or other rights in you when the contract is entered into or the right created D2 An entity grants an option to you when the option is granted D3 An entity grants you a right to receive * ordinary income from mining when the contract is entered into or, if none, when the right is granted D4 You enter into a * conservation covenant as a covenantee when the covenant is entered into E1 An entity creates a trust over a * CGT asset and you are the trustee when the trust is created E2 An entity transfers a * CGT asset to a trust and you are the trustee when the asset is transferred E3 A trust over a * CGT asset is converted to a unit trust and you are the trustee when the trust is converted E5 You as beneficiary under a trust become absolutely entitled to a * CGT asset of the trust as against the trustee (disregarding any legal disability) when you become absolutely entitled E6 Trustee * disposes of a *CGT asset of the trust to you to satisfy a right you had to receive * ordinary income from the trust when the * disposal occurs E7 Trustee * disposes of a *CGT asset of the trust to you to satisfy your interest, or part of it, in trust capital when the * disposal occurs E8 Beneficiary under a trust * disposes of its interest, or part of it, in trust capital to you when disposal contract is entered into or, if none, when beneficiary stops being interest's owner E9 An entity creates a trust over future property and you are the trustee when the entity makes the agreement to create the trust F1 A lessor grants a lease to you, or renews or extends a lease for grant of lease--when the contract is entered into or, if none, at the start of lease; for lease renewal or extension--at the start of renewal or extension F2 A lessor grants a lease to you, or renews or extends a lease, and term is at least 50 years for grant of lease--when lessor grants the lease; for lease renewal or extension--at the start of renewal or extension K3 An individual dies and a * CGT asset of the individual *passes to you (as a tax advantaged entity) when the individual dies K6 A * CGT event happens to *shares or an interest in a trust you own when the other CGT event happens Note 1: For CGT events E1, E2 and E3, if the circumstances specified in the second column of the table happened to an asset before 12 January 1994, there may be no acquisition: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997. Note 2: The acquisition rule for CGT event E9 in the table does not apply to you as trustee if the agreement to create the trust was made before 12 noon on 12 January 1994: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997. INCOME TAX ASSESSMENT ACT 1997 - SECT 109.10 When you acquire a CGT asset without a CGT event This table sets out some specific rules for the circumstances in which, and the time at which, you acquire a * CGT asset otherwise than as a result of a * CGT event happening. Acquisition rules (no CGT event) Item In these circumstances You acquire the asset at this time: 1 You (or your * agent) construct or create a *CGT asset, and you own it when the construction is finished or the asset is created when the construction, or work that resulted in the creation, started 2 A company issues or allots * equity interests or *non-equity shares in the company to you when contract is entered into or, if none, when equity interests or non-equity shares issued or allotted 3 A trustee of a unit trust issues units in the trust to you when contract is entered into or, if none, when units issued INCOME TAX ASSESSMENT ACT 1997 - SECT 109.15 Exceptions You do not acquire a * CGT asset if the asset was * disposed of: (a) to provide or redeem a security; or (b) because of the vesting of the asset in a trustee under the Bankruptcy Act 1966 or under a similar * foreign law; or (c) because of the vesting of the asset in a liquidator of a company, or the holder of a similar office under a foreign law. Table of sections 109-50 Effect of this Subdivision 109-55 Other acquisition rules 109-60 Acquisition rules outside this Part and Part 3-3 INCOME TAX ASSESSMENT ACT 1997 - SECT 109.50 Effect of this Subdivision This Subdivision is a * Guide. INCOME TAX ASSESSMENT ACT 1997 - SECT 109.55 Other acquisition rules This table sets out other acquisition rules in this Part and Part 3-3. Some of the rules have effect only for limited purposes. Other acquisition rules Item In these circumstances You acquire the asset at this time: See: 1 A CGT asset devolves to you as legal personal representative of a deceased individual when the individual died section 128-15 2 A CGT asset passes to you as beneficiary in the estate of a deceased individual when the individual died sections 128-15 and 128-25 3 A surviving joint tenant acquires deceased joint tenant's interest in a CGT asset when the deceased died section 128-50 4 You get only a partial exemption under Subdivision 118-B for a CGT event happening to a CGT asset that is a dwelling, but you would have got a full exemption if the CGT event had happened just before the first time the dwelling was used for that purpose at that time section 118-192 5 The trustee of a deceased estate acquires a dwelling under the deceased's will for you to occupy, and you obtain an interest in it when the trustee acquired it section 118-210 6 You obtain a replacement-asset roll-over for replacing an asset you acquired before 20 September 1985 before 20 September 1985 Divisions 122 and 124 6A A new owner obtains a replacement-asset roll-over for replacing an asset that the original owner acquired before 20 September 1985 before 20 September 1985 sections 124-915 and 124-920 7 You obtain a replacement-asset roll-over for a Crown lease, or a prospecting or mining entitlement that is renewed or replaced and part of the new entitlement relates to a part of the old one that you acquired before 20 September 1985 before 20 September 1985 (for that part of the new entitlement that relates to the pre-CGT part of the old one) sections 124-595 and 124-725 7A You obtain a replacement-asset roll-over in relation to an FSR transition and a replacement asset or part of a replacement asset relates to an original asset that you acquired before 20 September 1985 before 20 September 1985 (for that replacement asset or that part of a replacement asset that relates to a pre-CGT original asset) section 124-895 7B A new owner obtains a replacement-asset roll-over in relation to an FSR transition and a replacement asset or part of a replacement asset relates to an original asset that the original owner acquired before 20 September 1985 before 20 September 1985 (for that replacement asset or that part of a replacement asset that relates to a pre-CGT original asset) sections 124-915 and 124-920 8 You obtain a same-asset roll-over for a CGT asset the transferor acquired before 20 September 1985 before 20 September 1985 Subdivision 124-N and Divisions 122 and 126 8A There is a same-asset roll-over for a CGT event that happens to a CGT asset (acquired on or after 20 September 1985) because the trust deed of a fund is changed and you are the fund that owns the asset after the CGT event at the time of the CGT event Subdivision 126-C 8B There is a same-asset roll-over for a CGT event that happens to a CGT asset when the entity that owned the asset before the roll-over acquired it section 115-30 8C You obtain a replacement-asset roll-over (other than a roll-over covered by section 115-34) for replacing a CGT asset when you acquired the original asset involved in the roll-over section 115-30 8D A CGT asset devolves to you as legal personal representative of a deceased individual when the deceased acquired the asset (unless it was a pre-CGT asset just before his or her death) section 115-30 8E A CGT asset passes to you as beneficiary in the estate of a deceased individual when the deceased acquired the asset (unless it was a pre-CGT asset just before his or her death) section 115-30 8F A surviving joint tenant acquires a deceased joint tenant's interest in a CGT asset when the deceased acquired the interest section 115-30 8G You hold a membership interest in the receiving trust involved in a roll-over under Subdivision 126-G when you acquired the corresponding membership interest in the transferring trust involved in the roll-over section 115-30 9 A company or trustee of a unit trust issues you with bonus equities and no amount is included in your assessable income if the original equities are post-CGT assets, or are pre-CGT assets and fully paid--when you acquired the original equities; or if the original equities are pre-CGT assets and you had to pay an amount for the bonus equities--when the liability to pay arose section 130-20 10 You own shares in a company or units in a unit trust and you exercise rights to acquire new equities in the company or trust for the rights if you acquired them from the company or trustee--when you acquired the original equities; or for the new equities--when you exercise the rights section 130-40 11 You acquire shares in a company or units in a unit trust by converting a convertible interest when the conversion of the convertible interest happened section 130-60 11A You acquire shares in a company in exchange for the disposal of an exchangeable interest, and the disposal of the exchangeable interest was to: (a) the issuer of the exchangeable interest; or (b) a connected entity of the issuer of the exchangeable interest when the disposal of the exchangeable interest happened section 130-105 11B You acquire shares in a company in exchange for the redemption of an exchangeable interest when the redemption of the exchangeable interest happened section 130-105 13 You (as a lessee of land) acquire the reversionary interest of the lessor and there is no roll-over for the acquisition if term of lease was for 99 years or more--when the lease was granted or assigned to you; or if term of lease less than 99 years--when the reversionary interest acquired section 132-15 14 You acquired a CGT asset before 20 September 1985, and there has since been a change in the majority underlying interests in the asset at the time of the change Division 149 15 You become an Australian resident (but not a temporary resident) and you owned a CGT asset that you acquired on or after 20 September 1985 and that was not * taxable Australian property when you become an Australian resident (but not a temporary resident) section 855-45 15A You are a temporary resident, you then cease to be a temporary resident (but remain, at that time, an Australian resident) and you owned a CGT asset that you acquired on or after 20 September 1985 and that was not * taxable Australian property when you cease to be a temporary resident section 768-955 16 A trust of which you are trustee becomes a resident trust for CGT purposes and you owned a CGT asset that you acquired on or after 20 September 1985 and that was not * taxable Australian property when the trust becomes a resident trust for CGT purposes section 855-50 17 There is a roll-over under Subdivision 126-B for a CGT event and you are the company owning the roll-over asset just after the roll-over and you stop being a 100% subsidiary of another company in the wholly-owned group when you stop section 104-175 Note: Section 115-34 sets out other acquisition rules for certain cases involving replacement-asset roll-overs covered by that section. INCOME TAX ASSESSMENT ACT 1997 - SECT 109.60 Acquisition rules outside this Part and Part 3-3 This table sets out other acquisition rules outside this Part and Part 3-3. Provisions of the Income Tax Assessment Act 1936 are in bold. Other acquisition rules Item In these circumstances: The asset is acquired at this time: See: 1 CGT event happens to Cocos (Keeling) Islands asset 30 June 1991 section 24P 2 Lender acquires a replacement security before 20 September 1985 subsection 26BC(6A) 3 Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer when it ceases section 102AAZBA 4 CGT event happens to CGT asset in connection with the demutualisation of an insurance company except a friendly society health or life insurer on the demutualisation resolution day section 121AS 5 CGT event happens to assets of NSW State Bank at the first taxing time section 121EN 6 You own shares in a company that stops being a PDF just after it stops section 124ZR 7 You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME when you obtained the threshold interest section 128TI 8 A CGT asset of a CFC (that it owned on its commencing day) on the CFC's commencing day section 411 9 A CGT asset is owned by a tax exempt entity and it becomes taxable at the transition time section 57-25 in Schedule 2D 10 CGT event happens to CGT asset in connection with the demutualisation of a mutual entity other than an insurance company, health insurer and friendly society health or life insurer on the demutualisation resolution day Division 326 in Schedule 2H 11 You stop holding an item as trading stock when you stop paragraph 70-110(b) 11A You acquire an * ESS interest and Subdivision 83A-C (about employee share schemes) applies to the interest at the * ESS deferred taxing point for the interest section 83A-125 12 CGT event happens to 30 June 1988 asset of complying superannuation fund, complying approved deposit fund or pooled superannuation trust 30 June 1988 section 295-90 13 You are issued with a share or right under a demutualisation of a health insurer except a friendly society health or life insurer the time the share or right is issued sections 315-80, 315-210 and 315-260 14 You are transferred a share or right by a lost policy holders trust under a demutualisation of a health insurer except a friendly society health or life insurer the time the share or right is issued sections 315-145, 315-210 and 315-260 14A You are issued with a share, or a right to acquire shares, under a demutualisation of a friendly society health or life insurer the time the share or right is issued section 316-105 14B You are transferred a share, or right to acquire shares, by a lost policy holders trust under a demutualisation of a friendly society health or life insurer the time the share or right is issued to the trustee section 316-170 15 A CGT asset is transferred to or from a life insurance company's complying superannuation/FHSA asset pool at the time of the transfer Division 320 16 A CGT asset is transferred to or from the segregated exempt assets of a life insurance company at the time of the transfer Division 320 17 Entity becomes a subsidiary member of a consolidated group at the time it becomes a subsidiary member 701-5 18 Entity ceases to be a subsidiary member of a consolidated group at the time it ceases 701-40 Table of Subdivisions Guide to Division 110 110-A Cost base 110-B Reduced cost base Guide to Division 110 INCOME TAX ASSESSMENT ACT 1997 - SECT 110.1 What this Division is about This Division tells you how to work out the cost base and reduced cost base of a CGT asset. You need to know these to work out if you make a capital gain or loss from most CGT events. Table of sections 110-5 Modifications to general rules 110-10 Rules about cost base not relevant for some CGT events INCOME TAX ASSESSMENT ACT 1997 - SECT 110.5 Modifications to general rules After you have read the general rules, you need to know if there are any modifications to them. Division 112 lists each situation that may result in a modification and tells you where you can find the detailed provisions for each situation. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.10 Rules about cost base not relevant for some CGT events This table sets out each CGT event for which you do not need to know what the cost base or reduced cost base of a CGT asset is to work out if you make a capital gain or loss. The section describing the event tells you what amount is relevant instead. Rules about cost base not relevant for some CGT events Event number Description of event: See section: C3 End of option to acquire shares etc. 104-30 D1 Creating contractual or other rights 104-35 D2 Granting an option 104-40 D3 Granting a right to income from mining 104-45 E9 Creating a trust over future property 104-105 F1 Granting a lease 104-110 F3 Lessor pays lessee to get lease changed 104-120 F5 Lessor receives payment for changing lease 104-130 H1 Forfeiture of deposit 104-150 H2 Receipt for event relating to a CGT asset 104-155 J5 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over 104-197 J6 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain 104-198 K2 Bankrupt pays amount in relation to debt 104-210 K7 Balancing adjustment event happens to depreciating asset 104-235 K9 Carried interests 104-255 K10 You make a forex realisation gain covered by item 1 of the table in subsection 775-70(1) 104-260 K11 You make a forex realisation loss covered by item 1 of the table in subsection 775-75(1) 104-265 K12 Foreign hybrid loss exposure adjustment 104-270 L1 Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group 104-500 L2 Amount remaining after step 3A etc. of joining allocable cost amount is negative 104-505 L3 Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount 104-510 L4 No reset cost base assets against which to apply excess of net allocable cost amount on joining 104-515 L5 Amount remaining after step 4 of leaving allocable cost amount is negative 104-520 L6 Errors in tax cost setting amounts for entity joining consolidated group or MEC group 104-525 L8 Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated 104-535 Table of sections 110-25 General rules about cost base 110-35 Incidental costs 110-36 Indexation What does not form part of the cost base 110-37 Expenditure forming part of cost base or element 110-38 Exclusions 110-40 Assets acquired before 7.30 pm on 13 May 1997 110-43 Partnership interests acquired before 7.30 pm on 13 May 1997 110-45 Assets acquired after 7.30 pm on 13 May 1997 110-50 Partnership interests acquired after 7.30 pm on 13 May 1997 110-53 Exceptions to application of sections 110-45 and 110-50 110-54 Debt deductions disallowed by thin capitalisation rules INCOME TAX ASSESSMENT ACT 1997 - SECT 110.25 General rules about cost base (1) The cost base of a * CGT asset consists of 5 elements. Note 1: You need to keep records of each element: see Division 121. Note 2: The cost base is reduced by net input tax credits: see section 103-30. Note 3: An amount that makes up all or part of an element of the cost base of an asset may be determined under section 230-505, if the amount is provided for acquiring a thing, and you start or cease to have a Division 230 financial arrangement as consideration for the acquisition of the thing. 5 elements of the cost base (2) The first element is the total of: (a) the money you paid, or are required to pay, in respect of * acquiring it; and (b) the * market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). Note 1: There are special rules for working out when you are required to pay money or give other property: see section 103-15. Note 2: This element is replaced with another amount in many situations: see Division 112. (3) The second element is the * incidental costs you incurred. These costs can include giving property: see section 103-5. Note: There is one situation to do with options in which the incidental costs relating to the CGT event are modified: see section 112-85. (4) The third element is the costs of owning the * CGT asset you incurred (but only if you * acquired the asset after 20 August 1991). These costs include: (a) interest on money you borrowed to acquire the asset; and (b) costs of maintaining, repairing or insuring it; and (c) rates or land tax, if the asset is land; and (d) interest on money you borrowed to refinance the money you borrowed to acquire the asset; and (e) interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value. These costs can include giving property: see section 103-5. Note: This element does not apply to personal use assets or collectables: see sections 108-17 and 108-30. (5) The fourth element is capital expenditure you incurred: (a) the purpose or the expected effect of which is to increase or preserve the asset's value; or (b) that relates to installing or moving the asset. The expenditure can include giving property: see section 103-5. Note: There are 3 situations involving leases in which this element is modified: see section 112-80. (5A) Subsection (5) does not apply to capital expenditure incurred in relation to goodwill. (6) The fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property: see section 103-5.) Assume a CGT event for purposes of working out cost base at a particular time (12) If: (a) it is necessary to work out the * cost base at a particular time; and (b) a * CGT event does not happen in relation to the asset at or just after that time; assume, for the purpose only of working out the cost base at the particular time, that such an event does happen in relation to the asset at or just after that time. Note 1: For example, in order to apply subsection 110-37(1), it is necessary for there to be a CGT event. Note 2: The assumption that a CGT event happens does not have any consequence beyond that stated. For example, it does not mean that the asset is afterwards to be treated as having been acquired at the particular time with a first element of cost base equal to all of its former cost base elements. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.35 Incidental costs (1) There are a number of incidental costs you may have incurred. Except for the ninth, they are costs you may have incurred: (a) to * acquire a *CGT asset; or (b) that relate to a * CGT event. (2) The first is remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, * agent, consultant or legal adviser. However, remuneration for professional advice about the operation of this Act is not included unless it is provided by a * recognised tax adviser. Note: Expenditure for professional advice about taxation incurred before 1 July 1989 does not form part of the cost base of a CGT asset: see section 110-35 of the Income Tax (Transitional Provisions) Act 1997. (3) The second is costs of transfer. (4) The third is stamp duty or other similar duty. (5) The fourth is: (a) if you * acquired a *CGT asset--costs of advertising or marketing to find a seller; or (b) if a * CGT event happened--costs of advertising or marketing to find a buyer. (6) The fifth is costs relating to the making of any valuation or apportionment for the purposes of this Part or Part 3-3. (7) The sixth is search fees relating to a * CGT asset. (8) The seventh is the cost of a conveyancing kit (or a similar cost). (9) The eighth is borrowing expenses (such as loan application fees and mortgage discharge fees). (10) The ninth is expenditure that: (a) is incurred by the * head company of a *consolidated group or * MEC group to an entity that is not a * member of the group; and (b) reasonably relates to a * CGT asset *held by the head company; and (c) is incurred because of a transaction that is between members of the group. Example: Land is transferred by one company to another company. The companies are members of a consolidated group. Stamp duty is payable as a result of the transaction. The transaction has no taxation consequences because of its intra-group nature. The stamp duty is included in the cost base and reduced cost base of the land. Note: Intra-group assets are not held by the head company because of the operation of subsection 701-1(1) (the single entity rule). An example of an intra-group asset is a debt owed by a member of the consolidated group to another member of the group. (11) The tenth is termination or other similar fees incurred as a direct result of your ownership of a * CGT asset ending. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.36 Indexation (1) The cost base of a * CGT asset *acquired at or before 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999 also includes indexation of the elements of the cost base (except the third element) if the requirements of Division 114 are met. (2) However, for the purposes of working out the * capital gain of an entity mentioned in an item of the table from a * CGT event happening after 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999, the cost base includes indexation only if the entity mentioned in the item chooses that the cost base includes indexation. Choice of indexation Item For the purposes of working out the capital gain of this entity: The cost base includes indexation only if this entity chooses so: 1 An individual The individual 2 A * complying superannuation entity The trustee of the complying superannuation entity 3 A trust The trustee of the trust 4 A listed investment company The company Note 1: Section 103-25 specifies when you must make the choice and provides that the way you prepare your income tax return is evidence of your choice. Note 2: For each CGT asset whose cost base you need to work out, you may either choose to index the expenditure included in the asset's cost base or not make that choice. If you do not choose to index the expenditure, your net capital gain includes only part of your capital gain on the CGT asset as worked out on the basis of the cost base not including indexation and reduced by your capital losses. (3) Also, for the purpose of working out the * capital gain of a *life insurance company from a * CGT event happening after 30 June 2000 in respect of a * CGT asset that is a *complying superannuation/FHSA asset, the cost base includes indexation only if the life insurance company chooses that the cost base includes indexation. Note: Section 110-25 of the Income Tax (Transitional Provisions) Act 1997 provides that, in working out the capital gain from a CGT event after 11.45 am on 21 September 1999 and before 1 July 2000 in respect of an asset of a life insurance company or registered organisation, the cost base includes indexation only if the company or organisation chooses it. What does not form part of the cost base INCOME TAX ASSESSMENT ACT 1997 - SECT 110.37 Expenditure forming part of cost base or element (1) If a later provision of this Subdivision says that: (a) certain expenditure does not form part of the * cost base of a * CGT asset; or (b) the cost base is reduced by certain expenditure; the expenditure is initially included in the cost base, which is then reduced by the amount of the expenditure just before a * CGT event happens in relation to the asset. Note: This has the effect of recognising in the cost base any indexed component relating to the expenditure. (2) On the other hand, if such a provision says that: (a) certain expenditure does not form part of one or more elements of the * cost base of a *CGT asset; or (b) one or more elements of the cost base are reduced by certain expenditure; the expenditure is never included in the relevant elements of the cost base. Note: This has the effect of not recognising to any extent this expenditure in the cost base. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.38 Exclusions (1) Expenditure does not form part of any element of the cost base to the extent that section 26-54 prevents it being deducted (even if some other provision also prevents it being deducted). Note: Section 26-54 prevents deductions for expenditure related to certain offences. (2) Expenditure does not form part of any element of the cost base to the extent that it is a * bribe to a foreign public official or a * bribe to a public official. (3) Expenditure does not form part of any element of the cost base to the extent that it is in respect of providing * entertainment. (4) Expenditure does not form part of any element of the cost base to the extent that section 26-5 prevents it being deducted (even if some other provision also prevents it being deducted). Note: Section 26-5 denies deductions for penalties. (5) Expenditure does not form part of any element of the cost base to the extent that section 26-47 prevents it being deducted. Note: Section 26-47 denies deductions for the excess of boat expenditure over boat income. (6) Expenditure does not form part of any element of the cost base to the extent that section 26-22 prevents it being deducted. Note: Section 26-22 denies deductions for political contributions and gifts. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.40 Assets acquired before 7.30 pm on 13 May 1997 (1) This section prevents some expenditure from forming part of one or more elements of the * cost base of a *CGT asset *acquired at or before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 1997. (The expenditure mentioned in this section can include giving property: see section 103-5.) Note: For the cost base of a partnership interest you acquire at or before that time, see section 110-43. (2) Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it. (3) Expenditure does not form part of any element of the cost base to the extent of any amount you have received as * recoupment of it, except so far as the amount is included in your assessable income. (4) Subsection (2) does not apply in relation to amounts that you have deducted or can deduct under Division 243. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.43 Partnership interests acquired before 7.30 pm on 13 May 1997 (1) This section prevents some expenditure from forming part of one or more elements of the * cost base of your interest in a *CGT asset of a partnership if you * acquired the interest at or before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 1997. (The expenditure mentioned in this section can include giving property: see section 103-5.) (2) Expenditure does not form part of the second or third element of the cost base to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it. (3) Expenditure does not form part of any element of the cost base to the extent of any amount that you, or a partnership in which you are or were a partner, have received as * recoupment of the expenditure, except so far as the amount is included in your assessable income or the partnership's assessable income. (4) Subsection (2) does not apply in relation to amounts that you have deducted or can deduct under Division 243. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.45 Assets acquired after 7.30 pm on 13 May 1997 (1) This section prevents some expenditure from forming part of the * cost base, or of an element of the cost base, of a *CGT asset *acquired after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 1997. (The expenditure mentioned in this section can include giving property: see section 103-5.) For the cost base of interests in partnership assets acquired after that time, see section 110-50. For exceptions to the application of this section, see section 110-53. (1A) This section also applies to expenditure incurred after 30 June 1999 on land or a building if: (a) the land or building was * acquired at or before the time mentioned in subsection (1); and (b) the expenditure forms part of the fourth element of the * cost base of the land or building. Deductible expenditure excluded from second and third elements (1B) Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it. Other deductible expenditure (2) Expenditure (except expenditure excluded by subsection (1B)) does not form part of the cost base to the extent that you have deducted or can deduct it for an income year, except so far as: (a) the deduction has been reversed by an amount being included in your assessable income for an income year by a provision of this Act (outside this Part and Part 3-3 and Division 243); or Note: Division 20 contains some of the provisions that reverse deductions. Section 20-5 lists some others. (ab) the deduction is under Division 243; or (b) the deduction would have been so reversed apart from a provision listed in the table (relief from including a balancing charge in your assessable income). Provisions for relief from including a balancing charge in your assessable income Item Provision Subject matter 1 section 40-340 Roll-over relief for * depreciating asset 2 section 40-365 Involuntary disposal of * depreciating asset Recouped expenditure (3) Expenditure does not form part of any element of the cost base to the extent of any amount you have received as * recoupment of it, except so far as the amount is included in your assessable income. Capital expenditure by previous owner that you can deduct after acquisition (4) The cost base is reduced to the extent that you have deducted or can deduct for an income year capital expenditure incurred by another entity in respect of the * CGT asset. (This rule does not apply so far as the deduction is covered by paragraph (2)(a) or (b).) Example: Under Division 43 you can deduct expenditure incurred by a previous owner of capital works you own. Landcare and water facility expenditure giving rise to a tax offset (5) Expenditure does not form part of the cost base to the extent that you choose a * tax offset for it under the former section 388-55 (about the landcare and water facility tax offset) instead of deducting it. Heritage conservation expenditure giving rise to a tax offset (6) Expenditure does not form part of the cost base to the extent that: (a) it is eligible heritage conservation expenditure (as determined under former section 159UO of the Income Tax Assessment Act 1936); and (b) you could have deducted it for an income year under any of these Divisions (about capital works): (i) Division 43 of this Act; (ii) former Division 10C or 10D of Part III of that Act; but for the exclusions in paragraph 43-70(2)(h) of this Act and former subsections 124ZB(4) and 124ZG(5) of that Act. Note: Because eligible heritage conservation expenditure is the subject of a tax offset, it is also not deductible. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.50 Partnership interests acquired after 7.30 pm on 13 May 1997 (1) This section prevents some expenditure from forming part of the * cost base, or of an element of the cost base, of your interest in a * CGT asset of a partnership if you * acquired the interest after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 1997. (The expenditure mentioned in this section can include giving property: see section 103-5.) For exceptions to the application of this section, see section 110-53. (1A) This section also applies to expenditure incurred after 30 June 1999 on land or a building if: (a) the land or building was * acquired at or before the time mentioned in subsection (1); and (b) the expenditure forms part of the fourth element of the * cost base of the land or building. Deductible expenditure excluded from second and third elements (1B) Expenditure does not form part of the second or third element of the cost base to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it. Other deductible expenditure (2) Expenditure (except expenditure excluded by subsection (1B) does not form part of the cost base to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it for an income year, except so far as: (a) the deduction has been reversed by an amount being included in your assessable income for an income year, or in the assessable income of a partnership in which you are or were a partner, by a provision of this Act (outside this Part and Part 3-3 and Division 243); or Note: Division 20 contains some of the provisions that reverse deductions. Section 20-5 lists some others. (ab) the deduction is under Division 243; or (b) the deduction would have been so reversed apart from a provision listed in the table in subsection 110-45(2) (relief from including a balancing charge in your assessable income). Recouped expenditure (3) Expenditure does not form part of any element of the cost base to the extent of any amount that you, or a partnership in which you are or were a partner, have received as * recoupment of it, except so far as the amount is included in your assessable income or the partnership's assessable income. Capital expenditure by previous owner of the asset (4) The cost base is reduced to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct for an income year capital expenditure incurred by another entity in respect of the * CGT asset. (This rule does not apply so far as the deduction is covered by paragraph (2)(a) or (b).) Example: Under Division 43 an entity can deduct expenditure incurred by a previous owner of capital works that the entity owns. Landcare and water facility expenditure giving rise to a tax offset (5) Expenditure does not form part of the cost base to the extent that you choose a * tax offset for it under the former section 388-55 (about the landcare and water facility tax offset) instead of deducting it. Heritage conservation expenditure giving rise to a tax offset (6) Expenditure does not form part of the cost base to the extent that: (a) it is eligible heritage conservation expenditure (as determined under former section 159UO of the Income Tax Assessment Act 1936); and (b) you, or a partnership in which you are or were a partner, could have deducted it for an income year under any of these Divisions (about capital works): (i) Division 43 of this Act; (ii) former Division 10C or 10D of Part III of that Act; but for the exclusions in paragraph 43-70(2)(h) of this Act and former subsections 124ZB(4) and 124ZG(5) of that Act. Note: Because eligible heritage conservation expenditure is the subject of a tax offset, it is also not deductible. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.53 Exceptions to application of sections 110-45 and 110-50 (1) Subsection 110-45(2), (4), (5) or (6) or 110-50(2), (4), (5) or (6) does not prevent expenditure from forming part of the cost base to the extent that the deduction mentioned in that subsection could reasonably be regarded as arising before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 1997, or as relating to a period before that time. (2) Subsections 110-45(5) and (6) and 110-50(5) and (6) do not apply to expenditure incurred before the day on which the Bill that became the Taxation Laws Amendment Act (No. 1) 1999 was introduced into the House of Representatives. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.54 Debt deductions disallowed by thin capitalisation rules Expenditure does not form part of the third element of the cost base to the extent that Division 820 (Thin capitalisation rules) prevented or prevents you, or a partnership in which you are or were a partner, from deducting it. Table of sections 110-55 General rules about reduced cost base 110-60 Reduced cost base for partnership assets INCOME TAX ASSESSMENT ACT 1997 - SECT 110.55 General rules about reduced cost base (1) The reduced cost base of a * CGT asset consists of 5 elements. It does not include indexation of those elements. Note: The reduced cost base is reduced by net input tax credits: see section 103-30. 5 elements of the reduced cost base (2) All of the elements (except the third one) of the reduced cost base of a * CGT asset are the same as those for the *cost base. (3) The third element is: (a) any amounts worked out under whichever of the following subparagraphs applies: (i) if Division 58 does not apply to the asset--any amount included in your assessable income for any income year because of a balancing adjustment for the asset; (ii) if Division 58 applies to the asset and an amount has been included in your assessable income for an income year because of a balancing adjustment for the asset--any part of that amount that was attributable to amounts you have deducted or can deduct for the decline in value of the asset; and (b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income): (i) section 40-365; or (ii) any of these former sections--section 42-285, 42-290 or 42-293; or (iii) former subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936. What does not form part of the reduced cost base (4) The reduced cost base does not include an amount to the extent that you have deducted or can deduct it (including because of a balancing adjustment) or could have deducted apart from paragraph 43-70(2)(h). Note: That paragraph excludes from deductibility under Division 43 expenditure that qualifies for the heritage conservation rebate. (5) The reduced cost base does not include an amount that you could have deducted for a * CGT asset had you used it wholly for the * purpose of producing assessable income. (6) Expenditure does not form part of the reduced cost base to the extent of any amounts you have received as * recoupment of it. However, this rule does not apply to the extent that the amounts are included in your assessable income. (6A) Expenditure does not form part of the reduced cost base to the extent that you chose a * tax offset for it under the former section 388-55 (about the landcare and water facility tax offset) instead of deducting it. (7) If your * CGT asset is a *share in a company, its reduced cost base is reduced by the amount calculated under subsection (8) if: (aa) you are a * corporate tax entity; and (a) the company makes a distribution to you under an * arrangement; and (b) an amount (the attributable amount) representing the distribution or part of it is reasonably attributable to profits * derived by the company before you cacquired the share; and (c) you are entitled to a * tax offset under Division 207 on the part of the distribution that is a * dividend (the dividend amount); and (d) you were a * controller (for CGT purposes) of the company, or an * associate of such a controller, when the arrangement was made or carried out. (8) The amount of the reduction is: (9) The reduced cost base is to be reduced by any amount that you have deducted or can deduct, or could have deducted except for Subdivision 170-D, as a result of a * CGT event that happens in relation to a * CGT asset. However, do not make a reduction for an amount that relates to a cost that could never have formed part of the reduced cost base or is excluded from the reduced cost base as a result of another provision of this section. (9A) Expenditure does not form part of the reduced cost base to the extent that section 26-54 prevents it being deducted (even if some other provision also prevents it being deducted). Note: Section 26-54 prevents deductions for expenditure related to certain offences. (9B) Expenditure does not form part of the reduced cost base to the extent that it is a * bribe to a foreign public official or a * bribe to a public official. (9C) Expenditure does not form part of the reduced cost base to the extent that it is in respect of providing * entertainment. (9D) Expenditure does not form part of the reduced cost base to the extent that section 26-5 prevents it being deducted (even if some other provision also prevents it being deducted). Note: Section 26-5 denies deductions for penalties. (9E) Expenditure does not form part of the reduced cost base to the extent that section 26-47 prevents it being deducted. Note: Section 26-47 denies deductions for the excess of boat expenditure over boat income. (9F) Expenditure does not form part of the reduced cost base to the extent that section 26-22 prevents it being deducted. Note: Section 26-22 denies deductions for political contributions and gifts. Assume a CGT event for purposes of working out reduced cost base at a particular time (10) If: (a) it is necessary to work out the * reduced cost base at a particular time; and (b) a * CGT event does not happen in relation to the asset at or just after that time; assume, for the purpose only of working out the reduced cost base at the particular time, that such an event does happen in relation to the asset at or just after that time. INCOME TAX ASSESSMENT ACT 1997 - SECT 110.60 Reduced cost base for partnership assets (1) The third element of an entity's reduced cost base for its interest in a * CGT asset of a partnership is the entity's share of: (a) any amounts worked out under whichever of the following subparagraphs applies: (i) if Division 58 does not apply to the asset--any amount included in the assessable income of the partnership for any income year because of a balancing adjustment for the asset; (ii) if Division 58 applies to the asset and an amount has been included in the assessable income of the partnership for an income year because of a balancing adjustment for the asset--any part of that amount that was attributable to amounts that the partnership has deducted or can deduct for depreciation of the asset; and (b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income): (i) section 40-365; or (ii) any of these former sections--section 42-285, 42-290 or 42-293; or (iii) former subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936; calculated according to the entity's share in the partnership net income or net loss. (2) Expenditure does not form part of an entity's reduced cost base for its interest in a * CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has deducted or can deduct it (including because of a balancing adjustment), or could have deducted it apart from paragraph 43-70(2)(h). (3) Expenditure does not form part of an entity's reduced cost base for its interest in a * CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner could have deducted an amount for the asset if it had used it wholly for the * purpose of producing assessable income. (4) Expenditure does not form part of an entity's reduced cost base for its interest in a * CGT asset of a partnership to the extent of any amounts that a partnership in which the entity is or was a partner has received as * recoupment of it and that are not included in the assessable income of the partnership. (4A) Expenditure does not form part of an entity's reduced cost base for its interest in a * CGT asset of a partnership to the extent that the entity chose a * tax offset for the expenditure under the former section 388-55 (about the landcare and water facility tax offset) instead of deducting it. (7) The reduced cost base of an entity's interest in a * CGT asset of a partnership is to be reduced by the entity's share of any amount that the partnership has deducted or can deduct, or could have deducted except for Subdivision 170-D, as a result of a * CGT event that happens in relation to the asset. However, a reduction is not to be made for an amount that relates to a cost that could never have formed part of the reduced cost base or is excluded from the reduced cost base as a result of another provision of this section. Table of Subdivisions Guide to Division 112 112-A General modifications 112-B Finding tables for special rules 112-C Replacement-asset roll-overs 112-D Same-asset roll-overs Guide to Division 112 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.1 What this Division is about This Division tells you the situations that may modify the general rules about the cost base and reduced cost base of a CGT asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 112.5 Discussion of modifications (1) Modifications can occur from the time you acquired the CGT asset to when a CGT event happens in relation to it. Note: You should keep records of the modifications: see Division 121. (2) Most modifications replace the first element (what you paid for a CGT asset) of the cost base and reduced cost base of the asset. (3) Subdivision 112-A contains operative provisions setting out the general situations that may result in a modification to the general rules. (4) Subdivision 112-B (which is a guide) has a number of tables (each one covering a specialist topic) that tell you each situation that may result in a modification to the general rules. (5) Subdivision 112-C (which is a guide) explains what a replacement-asset roll-over is and how it can modify the cost base or reduced cost base. (6) Subdivision 112-D (which is a guide) explains what a same-asset roll-over is and how it can modify the cost base or reduced cost base. (7) Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a * Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. Table of sections 112-15 General rule for replacement modifications 112-20 Market value substitution rule 112-25 Split, changed or merged assets 112-30 Apportionment rules 112-35 Assumption of liability rule 112-37 Put options INCOME TAX ASSESSMENT ACT 1997 - SECT 112.15 General rule for replacement modifications If a cost base modification replaces an element of the * cost base of a * CGT asset with an amount, this Part and Part 3-3 apply to you as if you had paid that amount. Example: An individual pays $10,000 to acquire an option. The individual dies and the option devolves to his legal personal representative, who exercises the option. Section 134-1 applies to the legal personal representative as if the representative had paid $10,000 for the option. INCOME TAX ASSESSMENT ACT 1997 - SECT 112.20 Market value substitution rule (1) The first element of your * cost base and *reduced cost base of a * CGT asset you * acquire from another entity is its * market value (at the time of acquisition) if: (a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from: (i) * CGT event D1 happening; or (ii) another entity doing something that did not constitute a CGT event happening; or (b) some or all of the expenditure you incurred to acquire it cannot be valued; or (c) you did not deal at arm's length with the other entity in connection with the acquisition. The expenditure can include giving property: see section 103-5. (2) Despite paragraph (1)(c), if: (a) you did not deal at arm's length with the other entity; and (b) your * acquisition of the *CGT asset resulted from another entity doing something that did not constitute a CGT event happening; the * market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition). The payment can include giving property: see section 103-5. (3) There are some situations in which the rule in subsection (1) does not apply. They include the situations set out in this table: Exceptions to the market value substitution rule Item You * acquired this CGT asset: ...in this situation: 1 A right to receive * ordinary income or *statutory income from a trust (except a unit trust or a trust that arises because of someone's death) (a) you did not pay or give anything for the right; and (b) you did not acquire the right by way of an assignment from another entity 2 A decoration awarded for valour or brave conduct you did not pay or give anything for it 3 A contractual or other legal or equitable right resulting from * CGT event D1 happening you did not pay or give anything for it 4 Rights to * acquire: (a) * shares, or options to acquire *shares, in a company; or (b) units, or options to acquire units, in a unit trust; in a situation covered by Subdivision 130-B you did not pay or give anything for the rights 5 A * share in a company or a right to *acquire a share or *debenture in a company it was issued or allotted to you by the company and you did not pay or give anything for it 6 A unit in a unit trust or a right to * acquire a unit or debenture in a unit trust it was issued to you by the trustee of the unit trust and you did not pay or give anything for it 7 A right to * dispose of a *share in a company it was issued to you by the company and was exercised by you or by another entity who became the owner of the right Note 1: Disregard subsections (2) and (3) for shares or units that you acquired before 16 August 1989: see section 112-20 of the Income Tax (Transitional Provisions) Act 1997. Note 2: This section does not apply to ESS interests acquired under employee share schemes: see subsection 130-80(4). INCOME TAX ASSESSMENT ACT 1997 - SECT 112.25 Split, changed or merged assets Split or changed assets (1) This section sets out what happens if: (a) a * CGT asset (the original asset) is split into 2 or more assets (the new assets); or (b) a * CGT asset (also the original asset) changes in whole or in part into an asset (also the new asset) of a different nature; and you are the beneficial owner of the original asset and each new asset. Example: You subdivide a block of land into 3 separate blocks. Each of those blocks is a new asset. (2) The splitting or change is not a * CGT event. (3) You work out the * cost base and *reduced cost base of each new asset as follows: Method statement Step 1. Work out each element of the * cost base and *reduced cost base of the original asset at the time of the event referred to in subsection (1). Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset's * cost base and * reduced cost base. Merged assets (4) If 2 or more * CGT assets (the original assets) are merged into a single asset (the new asset) and you are the beneficial owner of the original assets and the new asset: (a) the merger is not a * CGT event; and (b) each element of the * cost base and *reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset. INCOME TAX ASSESSMENT ACT 1997 - SECT 112.30 Apportionment rules Apportionment on acquisition of an asset (1) If you * acquire a *CGT asset because of a transaction and only part of the expenditure you incurred under the transaction relates to the acquisition of the asset, the first element of your * cost base and *reduced cost base of the asset is that part of the expenditure that is reasonably attributable to the acquisition of the asset. The expenditure can include giving property: see section 103-5. Apportionment of expenditure in other elements (1A) If you incur expenditure and only part of it relates to another element of the * cost base or *reduced cost base of a *CGT asset, that element includes that part of the expenditure that is reasonably attributable to that element. Apportionment for CGT asset that was part of another asset (2) The * cost base and *reduced cost base of a *CGT asset is apportioned if a * CGT event happens to some part of the asset, but not to the remainder of it. Note: The full list of CGT events is in section 104-5. (3) The * cost base for the *CGT asset representing the part to which the * CGT event happened is worked out using the formula: The * reduced cost base is worked out similarly. (4) The remainder of the * cost base and *reduced cost base of the asset is attributed to the part that remains. Example: You acquire a truck for $24,000 and sell its motor for $9,000. Suppose the market value of the remainder of the truck is $16,000. Under subsection (3), the cost base of the motor is: Under subsection (4), the cost base of the remainder of the truck is: (5) However, an amount forming part of the * cost base or *reduced cost base of the asset is not apportioned if, on the facts, that amount is wholly attributable to the part to which the * CGT event happened or to the remaining part. INCOME TAX ASSESSMENT ACT 1997 - SECT 112.35 Assumption of liability rule If you * acquire a *CGT asset from another entity that is subject to a liability, the first element of your * cost base and *reduced cost base of the asset includes the amount of the liability you assume. Example: You acquire a block of land for $150,000. You pay $50,000 and assume a liability for an outstanding mortgage of $100,000. The first element of your cost base and reduced cost base is $150,000. Note: The first element of cost base is dealt with in subsection 110-25(2). The first element of reduced cost base is the same: see subsection 110-55(2). INCOME TAX ASSESSMENT ACT 1997 - SECT 112.37 Put options The first element of the * cost base and *reduced cost base of a right to * dispose of a * share in a company that you * acquire as a result of *CGT event D2 happening to the company is the sum of: (a) the amount that is included in your assessable income as ordinary income as a result of your acquisition of the right; and (b) the amount (if any) that you paid to acquire the right. Table of sections 112-40 Effect of this Subdivision 112-45 CGT events 112-48 Gifts acquired by associates 112-50 Main residence 112-53 Scrip for scrip roll-over 112-53AA Statutory licences 112-53A MDO roll-over 112-53B Exchange of stapled ownership interests for units in a unit trust 112-53C Water entitlement roll-overs 112-54 Demerges 112-54A Transfer of assets between certain trusts 112-55 Effect of you dying 112-60 Bonus shares or units 112-65 Rights 112-70 Convertible interests 112-77 Exchangeable interests 112-80 Leases 112-85 Options 112-87 Residency 112-90 An asset stops being a pre-CGT asset 112-92 Demutualisation of certain entities 112-95 Transfer of tax losses and net capital losses within wholly-owned groups of companies 112-97 Modifications outside this Part and Part 3-3 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.40 Effect of this Subdivision (1) This Subdivision is a * Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. (2) It sets out which element of the cost base or reduced cost base of a CGT asset is affected by various situations. INCOME TAX ASSESSMENT ACT 1997 - SECT 112.45 CGT events CGT events Event number In this situation: Element affected: See section: D4 A conservation covenant is entered into over land The total cost base and reduced cost base 104-47 E1 A trust is created over a CGT asset First element of cost base and reduced cost base 104-55 E2 A CGT asset is transferred to a trust First element of cost base and reduced cost base 104-60 E4 A trustee makes a capital payment to you in relation to units or an interest in the trust The total cost base and reduced cost base 104-70 F4 A lessee receives payment for changing lease The total cost base 104-125 G1 A company makes a capital payment to you in relation to your shares The total cost base and reduced cost base 104-135 G3 A liquidator or administrator declares shares or financial instruments to be worthless The total cost base and reduced cost base 104-145 K8 Direct value shifts affecting your equity or loan interests in a company or trust The total cost base and reduced cost base Subdivision 725-D J4 Trust fails to cease to exist after a roll-over under Subdivision 124-N First element of cost base and reduced cost base 104-195 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.48 Gifts acquired by associates Gifts acquired by associates Item In this situation: Element affected: See section: 1 A gift of property is covered by subsection 118-60(1) or (2) and the property is later * acquired by an associate for less than market value First element of cost base and reduced cost base 118-60 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.50 Main residence Main residence Item In this situation: Element affected: See section: 1 A dwelling that is your main residence begins to be used for the first time for the purpose of producing assessable income The total cost base and reduced cost base 118-192 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.53 Scrip for scrip roll-over Scrip for scrip roll-over Item In this situation: Element affected: See section: 1 Interest is acquired by an entity where there is a roll-over under Subdivision 124-M and there is a significant or common stakeholder under an arrangement First element of cost base and reduced cost base 124-782 2 Equity or debt is acquired by an ultimate holding company under that arrangement from a member of its wholly-owned group First element of cost base and reduced cost base 124-784 2A Interest is acquired by an entity where there is a roll-over under Subdivision 124-M and the arrangement is taken to be a restructure First element of cost base and reduced cost base 124-784B 3 You exchange an interest you acquired before 20 September 1985 for an interest in another entity The total cost base and reduced cost base 124-800 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.53AA Statutory licences New statutory licence Item In this situation: Element affected: See section: 1 New statutory licences First element of cost base and reduced cost base 124-150, 124-155 and 124-160 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.53A MDO roll-over MDO roll-over Item In this situation: Element affected: See section: 1 Exchange of an interest in an MDO for an interest in another MDO First element of cost base and reduced cost base 124-985 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.53B Exchange of stapled ownership interests for units in a unit trust Exchange of stapled ownership interests for units in a unit trust Item In this situation: Element affected: See section: 1 Exchange of stapled ownership interests First element of cost base and reduced cost base 124-1055 and 124-1060 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.53C Water entitlement roll-overs Roll-over for water entitlements Item In this situation: Element affected: See section: 1 You replace one or more water entitlements with one or more new water entitlements First element of cost base and reduced cost base 124-1120 and 124-1130 2 You have a reduction in one or more water entitlements that you own First element of cost base and reduced cost base 124-1145 and 124-1150 3 A CGT event happens to an asset you own as a result of the replacement of water entitlements First element of cost base and reduced cost base 124-1165 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.54 Demergers Demergers Item In this situation: Element affected: See section: 1 There is a roll-over under Subdivision 125-B after a demerger First element of cost base and reduced cost base of new interests and remaining original interests 125-80 2 There is a CGT event under a demerger but no roll-over under Subdivision 125-B First element of cost base and reduced cost base of new interests and remaining original interests 125-85 3 There is a cost base adjustment under Subdivision 125-B but no CGT event under a demerger First element of cost base and reduced cost base of new interests and remaining original interests 125-90 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.54A Transfer of assets between certain trusts Transfer of assets between certain trusts Item In this situation: Element affected: See sections: 1 There is a roll-over under Subdivision 126-G relating to the transfer of a CGT asset between certain trusts First element of cost base and reduced cost base of the CGT asset 126-240 2 There is a roll-over under Subdivision 126-G relating to the transfer of a CGT asset between certain trusts Cost base and reduced cost base of membership interests in each trust 126-245 and 126-250 INCOME TAX ASSESSMENT ACT 1997 - SECT 112.55 Effect of you dying Effect of an individual dying Item In this situation: Element affected: See section: 1 CGT asset devolves to the legal personal representative First elem